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COST 
CAPITALIZATIOIV 

AND 

ESTIMATED YALUE 



AMERICAN RAILWAYS 



AN ANALYSIS OF CURRENT FALLACIES 



SLASON THOMPSON 
BUREAU OF jSaILWAY NEWS 



THIRD EDITION 



Chicago: 

Gunthorp-Warren Printing Company 

1908 






Gift 
Author 
(Perion) 



NOTE. 

Except as they present facts and legitimate deduc- 
tions, no authoritative value is claimed for these pages. 
Neither is any railway official or organization responsible 
for the views expressed herein. They are published by 
the writer as the result of four years' study, in which he 
has had time and opportunity to investigate the subject 
beyond what was possible in his many years of active 
daily journalism. 

Wherever statements of fact are not matters of com- 
mon knowledge their source is given. From these facts 
only the most obvious deductions have been drawn. 

S. T. 
Chicago, 1907. 



There can, indeed, be no doubt that American^rail- 
ways are less over-capitalized now than they have ever 
previously been, the amount of profit diverted to capital 
purposes in recent years having been on a truly colossal 
scale. — London Statist, August 24, 1907. 



CONCLUSIONS BY WAY OF PREFACE 

From the facts presented in the following pages it is sub- 
mitted that the VALUE of railway property in the United 
States employed in the service of the public is shown by several 
independent methods of inquiry to exceed their total NET 
CAPITALIZATION. 



Historically, the cost is shown to be always cumulative, while 
the capitalization has sometimes been scaled down and millions 
of expenditures have never been capitalized. 



! Where the Net Capitalization in 1906 has been officially de- 
clared to be only $11,671,940,649, the cost or value ascertained, 
through several processes, is approximated as follows : 



Construction and Equipment to June 30th, 1905, $13,000,000,000 
(Exclusive of appreciation of right of way and terminal rights.) 



Commercial Value, as approximated by Prof. 

Henry C. Adams as of June 30th, 1904 $11,244,852,000 

Applying Prof. Adams' formulae to earnings of 

1905 .$15,235,765,167 

Applying Prof. Adams' formulae to earnings of 

1906 $17,248,620,000 



Market Value as shown in quotations of securities, anywhere 

From $1 1,000,000,000 

To $14,000,000,000 

and upward, 

according as affected by politics, crops, value of 
money and manipulation. 



It has gone for naught with the "social agitators," back of 
this contention, that the rates on American railways are not 
exorbitant, being the lowest in the world. Neither have they 
been able to grasp the truth that rates are not fixed by divi- 
dends, because they close their understanding absolutely to the 
mute immutable testimony of such figures as the following, 
showing that while gross railway capitalization per mile has 
steadily increased during the period of Mr. Adams' incumbency 
of his present office, the tendency of average rates has, almost 
invariably, been downward: 

Gross Capital and Average Receipts Per Mile, 1888-1906. 



Year. 


Gross Railway 
Capital 
per Mile. 


Passenger 
Receipts per 

Passenger 
Mile (Cents). 


Freight 

Receipts per 

Ton Mile 

(Cents). 


1888 


$56,498 
56,892 
58,659 
59,006 
61,130 
59,729 
59,419 
59,650 
59,610 
59,620 
60,343 
60,556 
61,490 
61,531 
62,301 
63.186 
64,265 
65,926 
67,936 


2.349 
2.165 
2.142 
2.126 
2.108 
2.111 
1.986 
2.040 
2.019 
2.022 
1.973 
1.978 
2.003 
2.013 
1.986 
2.006 
2.006 
1.962 
2.002 


1 001 . 


1889 


.922 


1890 


.941 


1891 


.895 


1892 


.898 


1893 


.879 


1894 


.860 


1895 


.839 


1896 


.806 


1897 


.798 


1898 


.753 


1899 


.724 


1900 


.729 


1901 


.750 


1902 . . .... 


.757 


1903 

1904 


.763 
.780 


1905 


.766 


1906 


.748 







Here is an official demonstration that while the capitalization 
of American railways increased $11,438 per mile between 1888 
and 1906 their average passenger receipts per mile declined more 
than a third of a cent, and their freight earnings per ton were 
less by over a quarter of a cent per mile. 

President Roosevelt and Senator La Follette and Professor 
Adams and all intelligent students of railway affairs understand 
the significance of these figures, but the "social agitators" dwell 
upon the increase of capital and never tell their deluded fol- 
lowers that a reduction of one-third of a cent per passenger 



mile on the traffic of 1906 meant a saving of $87,000,000 to the 
traveling public, while a decline of 2.53 mills in the rate per ton 
mile meant a loss to the railways of $545,974,000 on the freight 
traffic of 1906. 

These two items make a total greater by $138,000,000 than the 
aggregate of interest and net dividends paid by the railways 
in 1905. In other words the possible net profits of the railways 
in 1906 were practically cut in two by the decline in passenger 
and freight rates between 1888 and 1906. 

Any relation between capitalization and rates such as is 
harped on by the "social agitators" is thus demonstrated to be 
an iridescent bubble proceeding from more "water" on the brain 
than there is in all the railways in the universe. 



The prevalence of such popular hallucinations, however, 
emphasizes the necessity for an intelligent attempt on the part 
of the government to ascertain and publish to the world a 
reasonably trustworthy estimate of the cost and true valuation 
of the railways of the United States. The right to regulate 
carries with it the duty to protect. This was recognized in 
the passage ^of the original Act to Regulate Commerce and by 
the first Commissioners appointed under that act. In its .first 
report written by the late Judge Thomas M. Cooley, than whom 
no higher authority ever wrote on railway subjects, the Com- 
mission says: 

"The act to regulate commerce was not passed to injure any 
interests, but to conserve and protect. It had for its object 
to regulate a vast business according to the requirements of 
justice." 

The power to decree reasonable rates carries with it the duty 
to preserve the property of the railways from confiscation or 
unreasonable rates, and the Supreme Court of the United States 
has declared that a railway company "is entitled to ask a fair 
return upon the value of that which it employs for the public 
convenience." Furthermore, it has decided that: 

"In order to ascertain that value, the original cost of con- 
struction, the amount expended in permanent improvements, 



6 

the amount and market value of its bonds and stock, the present 
as compared with the original cost of construction, the proba- 
ble earning capacity of the property under particular rates pre- 
scribed by statute, and the sum required to meet operating ex- 
penses, are all matters for consideration, and are to be given 
such weight as may be just and right in each case/' 

If it were established once for all, under the stamp of an 
impartial investigation, that the ascertained value of the rail- 
ways after due consideration of these elements was equal to or 
exceeded the sum of their stocks and bonds, very much of 
the popular hostility to their management would disappear. 
Such hostility is undoubtedly fanned into radical demands for 
restrictive and oppressive legislation by the reiterated charges 
that extortionate rates are imposed in order to pay profits on 
excessive capitalization. Nothing short of a thorough govern- 
mental investigation of the cost and value of the property used 
for its convenience will satisfy the public who are right, the 
^'social agitators" or the hundreds of thousands of American 
citizens who have invested billions in American railways. 

Unless it can be shown, that the cost or present value of 
the railways approaches their capitalization, the crusade of the 
''social agitators" will continue to attract followers by confusing 
cries of "water" and "over-capitalization" in one breath and 
"exorbitant rates" and "discrimination" in another. This too 
in spite of the testimony of such an unprejudiced expert as 
Chairman Martin A. Knapp of the Interstate Commerce Com- 
mission, who as long ago as 1899 testified before the Industrial 
Commission as follows : 

"I have not seen any instances in which the rates have seemed 
to much depend upon or be influenced by the capitalization of 
a road. 

"Q. You have never seen such a case? 

"A. I have not. The capitalization of the railroad, I think, 
cuts no figure in this rate question." 

This from a firm believer in the principle that "a fair valua- 
tion on the railroad properties" is an essential basis for a judi- 
cial determination of what the proper rate should be, would 
seem to be conclusive. 



It is therefore as a measure to protect their rights in any 
judicial investigation into their rates, that I would recommend 
to the railways that instead of opposing they should insist upon 
an official valuation of their properties. Such a valuation by 
an intelligent and fair-minded commission, would, in my 
opinion, result in a convincing demonstration that American 
railways, as a whole, are under-capitalized, and that all the 
"water" that from time to time has been present in their stocks 
has been absorbed by the cost of improvements, plowed back, 
as the farmers say, into them from operating expenses and net 
earnings. 

Given such a Commission as that named by Governor La 
Follette himself, which has recently made a report on 
passenger rates in Wisconsin, remarkable for its compre- 
hensive thoroughness and judicial fairness, and the railways have 
nothing to fear but much to gain by supporting Senator La Fol- 
lette's proposition, so far as it relates to the valuation of their 
properties. If there ever was a case of a man smitten dumb 
by a granted prayer, it would be the Senator from Wisconsin 
by the report of any commission capable of making a reasona- 
bly adequate and just valuation of railway properties in the 
United States. 

The only thing the railways have to fear is the appointment 
of prejudiced or incapable appraisers. 



It is the purpose of the present writer to anticipate, so far 
as may be, the findings of such an official body, conceding 
at the outset that anything like an authoritative valuation of 
railway property is beyond the reach of his expectancy. Even 
the government with all its resources and inquisitorial powers 
can never arrive at a definitive conclusion of what has been 
well called a "superhuman task." 

The difficulties confronting such an undertaking are practi- 
cally insuperable. That of numbering the stars deals with 
more tangible units. As the Railway and Warehouse Commis- 
sion of Minnesota, which has essayed the task for a single state, 
admits, it involves "the closest personal examination of all the 



physical properties of each company doing business in this 
state." Moreover those entrusted with it must be (to quote 
from the same authority) "Men of wide experience, who thor- 
oughly understand the business in all its details, and who know 
the values of everything which enters Jnto the problem, from 
the right of way to the completed road, with all its necessary 
equipment. As every line has its own physical obstacles to 
overcome and the necessary conditions of efficiency and the 
necessary equipment in each case involves nearl}; every cir- 
cumstance affecting the business, such work cannot be hurriedly 
or superficially done without complete sacrifice of the value 
and usefulness of the work as evidence." 

Then the Commission enumerates a few of the items com- 
prised in its investigation as follows: 

"The detailed examination into the present value of lands 
for right of way, yards and terminals ; the cost of tracks, bridges, 
buildings, shops, machinery and tools, engine-houses and turn- 
tables, locomotives, freight and passenger cars, in fact, every 
item that enters into the physical property of. the railroads of 
the state." 

It must be evident that when the value of all these things 
have been estimated — they cannot possibly be ascertained — 
there remain the intangible rights and opportunities to be 
guessed. 

What this may amount to can be "guessed" from the fact 
that the Tax Commission of Texas in 1906 valued the intangi- 
ble properties of the railways of that state at $152,827,760 
after deducting $188,600,939, the value of their physical property 
fixed by the Railroad Commission, "from the true cash value 
of all the property of said companies" in Texas. 

No guess based on earnings can be admitted, being precluded 
by the purpose of the inquiry to find "a safe foundation upon 
which to construct fair and reasonable rates," for the rates are 
themselves the determining factor in the earnings. 

Nothing short of omniscience can know or find out what the 
State of Minnesota has undertaken in the premises. 

Manifestly, therefore, nothing absolutely conclusive will be 
attempted or should be expected in these pages. But it is 



9 

believed that by applying various tests with candor and com- 
mon sense a more or less convincing estimate of the present 
value of railway property in the United States, as a whole, may 
be arrived at. Statistics will be used only to aid ordinary in- 
telligence to reach a sane conclusion. 



To begin w^ith, comparison will be invited to measure the 
cost and capitalization of American railways by that of foreign 
railways. This test involves a very simple process and would 
be of great assistance if the physical and financial conditions of 
railway construction and the necessities of traffic in different 
countries could be reduced to a common basis for comparisons. 
Unfortunately this is impossible and therefore comparison, "the 
right hand of logic," will only be appealed to to throw a side- 
light on the subject. 

Next there is the historical method of investigation. This 
will trace the making of American railways from the small be- 
ginnings three-quarters of a century ago and their gradual evo- 
lution from the twenty-three miles of horse power railways in 
1830 to the 317,083 miles of all kinds of track in 1906. Done 
with any approach to exhaustiveness this would require as 
many volumes as the "Messages and Papers of the Presidents," 
which will never be brought up to date. But no commensurate 
estimate of the cost and value of American railways can be made 
without at least a cursory review of the trackless task that con- 
fronted them, and the various stages of their development. 
"The Winning of the West" by the voyageur and pack train 
has no more stirring stories of courage, adventure and indomita^ 
ble energy than can be found in the final conquest of this 
continent by the surveying parties, construction gangs and 
steam horses of railway history. And all along the trail of 
almost incredible achievement there has been one continuous 
chorus of pessimism and detraction. Criticism and speculation 
between them have made the construction of American railways 
an undertaking beset with quicksands and whirlpools. The 
history of railway construction as written in Wall Street has 



10 

been one thing; its history in the field, from the driving of 
the first spike by one of the signers of the Declaration of Inde- 
pendence, down to the present day, has been another. 

Unfortunately, the financiering of railway companies has 
received more attention in public prints, than the details of the 
expenditures involved in making the railways themselves. Coups 
in Wall Street by which the control over the properties was 
seized or shifted, have obscured the unsensational progress by 
which those properties wevQ steadily and often stealthily trans- 
formed from the "strap rail" period to vast transportation sys- 
tems of today. And so we are left to guess what this transfor- 
mation cost, and are forced to piece out any information we 
have of original cost by an inquiry into what it would cost to 
produce existing railways at present prices. Thousands and 
millions of dollars have gone into the making of the railways 
of America which is represented in the properties but not in 
the capitalization of present companies. Panics, abandonments 
and reorganizations have dealt cruelly with the investments 
of thousands who put their faith in the alluring railway pros- 
pectuses of the past. The public has been the only invariable 
winner throughout the record of experiments, wrecks and re- 
ceiverships that mark the financial history of American rail- 
ways. It has been truly said that no matter how unprofitable 
any particular undertaking has been to its owners, no American 
railway has failed to bring profit, sometimes ten fold, to the 
community it served. This is true although there are thousands 
of miles of badly located roads in the union which never should 
have been built where they were first surveyed. Once built, 
however, the investment in them has been irrevocable, and the 
years come and go without bringing the balsam of dividends to 
cure the original mistake. 



It is the futility of attempting to get at the original cost and 
subsequent sums poured into sustenance, as well as maintenance 
and improvement that has brought most economists to con- 
sider that the present value of railways can best be approxi- 
mated by the cost of reproduction at present prices. The in- 



11 

vestment of foresight, energy and spirit of venture, to which we 
owe the railways as much as to the actual money invested, may 
be considered as being represented by the increase that has 
come in the value of the right of way and terminals, to which 
the railways have contributed their value. 

While it is doubtful if the present cost of reproduction new 
would cover the original cost of the railways, plus the cost 
of reconstruction concealed in yearly and daily maintenance and 
improvements to meet the ever increasing traffic, it is generally 
admitted that no other method would so nearly and justly recog- 
nize all the elements that underlie the present value of American 
railways. And after the cost of reproduction is estimated there 
remain other elements of value to be considered, notably that 
intangible, illusive thing known as franchise value. This is a 
possession of the railways which may have more value than 
their tangible property and yet there is no known method by 
which that value can be estimated with any approacli to con- 
vincing accuracy. It is more nearly represented in net earnings 
than anywhere else. The right to operate over a favorably 
located line in a territory of dense traffic between termini of in- 
creasing originating or distributing potentialities, is the posses- 
sion that differentiates successful railways from the failures. 
The physical attributes are the mere means for its exploitation. 
Such an inquiry as this must include an estimate of the com- 
mercial value of the railways as a system. This means the 
market estimate of the property, not according to its cost or 
its value as a physical proposition, but as based on its net 
income and what is termed the "strategic significance" of the 
property. In 1900 in response to a Senate resolution the Inter- 
state Commerce Commission made one approximation and in 
1905 Statistician Adams of the Commission made another ap- 
praisal for the Census Bureau. Both of these are interesting but 
unconvincing contributions to the study of the subject. 

Another means of arriving at an estimate of the value of 
railways is to study them through the returns of the different 
assessors and state boards of equalization. Here they are 
weighed in scales which have never been tipped in the favor 
of the corporations to any notorious extent. When it is con- 



12 

sidered that they are regulated as public highways, the levying 
of any tax upon railways is an anomalous proceeding. But in 
the matter of taxation the railways are treated as private cor- 
porations and pay taxes in excess pro rata of those paid by the 
tillers of the soil, the manufacturers and the merchants whom 
they serve at the lowest rates on earth. 

Through these various mediums, which in some instances 
overlap and afford cumulative testimony, it is thought an ap- 
proach may be made to a convincing estimate of the present 
value of the railways of the United States — at least sufficiently 
convincing to dissipate from all reasonable minds the impres- 
sion that as a whole American railways are grossly over-capital- 
ized. 

Nothing authoritative will be attempted in this inquiry, its 
only aim being to present facts that will enable the fair minded 
to arrive at a mean estimate of the value of our railways that 
shall approximate the truth. This, it is believed, will support 
the view of President Hadley of Yale that "the effect of a fair 
valuation would be overwhelming proof of the reasonableness 
of American railway rates as fixed at present." 



13 



A SEVEN BILLION DOLLAR ERROR 

The Reductio Ad Absurdum 

In approaching a subject of such infinite possibilities for 
error, it is well at the outset to sweep aside the one obvious 
misstatement which from its bold reiteration may be regarded 
as the chief corner stone of the present agitation against Ameri 
can railways. 

In his three-day speech before the Senate on April 19, 20, 
and 23, 1906, Senator La Follette having, on the estimates ol 
one reckless writer, estimated that in 1903 there was seven 
billion dollars of water in the capital of American roads, took 
occasion to adopt the theories of another even less reliable 
author to astound his hearers with the statement that $8,000,- 
000,000 odd of their capitalization in 1904 was entirely ficti- 
tious. 

It is interesting to trace how Senator La Follete worked 
himself up to this magnificent absurdity. In 1893 ^r- ^^^ Oss 
of London published a work entitled "American Railways as 
Investments," which, with true insular abandon, fairly reeked 
with charges of fraud, dishonesty and recklessness in the con- 
struction and financiering of American railways. As a result 
of Mr. Van Oss' alleged investigations, to quote Senator La 
Follette's words, he arrived at ''two important conclusions: 

'Tirst, that the average amount originally received in actual 
value for American railway bonds probably did not exceed 
67 per cent; 

"Second, that the original investor in American railway stocks 
certainly paid not more, on the average, than 10 per cent, of 
their face value, and probably less." 

Then Senator La Follette, accepting these glaring fictions 
as facts, on his own account went on to construct he following 
Eiffel tower of error: 



14 

"If an estimate of the actual investment on American rail- 
roads is computed on the basis of these final percentages given 
by Mr. Van Oss on the capitalization of 1904, as reported by 
the Interstate Commerce Commission, we get the following 
result : 

Senator La Follette's Estimate. 



Stocks, 10 per cent of $6,339,899,329, say 

Bonds, 67 per cent of $6,873,225,350, say 

Total investment represented by $13,213,124,679, total capital. 
Or say 



$ 65,000,000 
4,585,000,000 



$4,650,000,000 
$5,000,000,000 



"The remaining $8,000,000,000 odd are entirely fictitious 
capitalization, and cannot be considered in discussion of rail- 
way earnings.'* 

Why Senator La Follette made the mistake of saying that 
$65,000,000 was a round figure for 10 per cent, of six billion odd, 
or did not swell his fictitious capitalization to eight and a half 
billion, as he well might by the showing of his original error, 
is not explained in the context in the Congressional Record. 

That Senator La Follette was thoroughly possessed and fas- 
cinated by the false estimates cited in this speech is proved by 
the following extract from his speech of May 18, 1906, explain- 
ing his vote on the Hepburn bill : 

"So long as the legislation relative to the common carriers 
of this country permits these corporations to increase their 
capital stock without limit, increase it without adding any- 
thing of value to their properties, and increase it solely with 
the purpose of fixing rates upon that inflated capitalization, 
in order to pay profits and dividends to those holding the stocks 
and bonds, in which they have no real investments, just so long 
this question will be a vital issue before the American people. 
There is today in the stock and bond valuation of the railroads 
of this country upward of seven billions of water." 

Let us examine this fictitious Niagara in the light of incon- 
trovertible facts : 

According to the last statistical report of the Interstate Com- 
merce Commission, the total railway capital outstanding, in- 



15 



eluding stocks, bonds, income bonds, equipment trust obliga- 
tions, and miscellaneous obligations was $14,570,421,478. Of 
this $2,257,175,799 stock and $641,305,030 bonds was owned by 
the railways in their corporate capacity and was not in the 
hands of the public, and in the language of the official statis- 
tician, "to the extent that such reductions are proper, over- 
states the capital." This leaves the net capital of the railways 
at $11,671,940,649. 

There are certain physical appurtenances to the operation of 
railways which have a standard average value, namely, locomo- 
tives, cars, rails and ties. They cannot be bought for "water." 

Their cost as they stood on June 30, 1906, may be tabulated 
thus: 

Estimated Cost of Equipment, Rails and Ties. 



Items. 



Cost. 



51 672 Locomotives at $12 000 


$ 620 064 000 


42 262 Passenger Cars at $6 000 


253 572 000 


1 837 914 Freight Cars at $1,000 


1 837 914 000 


78 736 Work Cars at $600 


47 241,600 


*309 218 Miles of Track, 70-Ib. Rail, at $28 per ton 


1,066,802,000 
445,273,000 


Ties for ditto, 2,880 to the Mile, at 50 ct 






Total 


$4,270,866,000 







♦Estimated. 

This affords the basis for the following demonstration of 
the absurdity of Senator La Follette's claim that there is "up- 
ward of seven billions of water" in the stock and bond valua- 
tion of the railroads of this country today: 

Demonstration of Senator La Follette's Error. 



Net Capitalization in 1905 (official) 


$11,671,940,649 




4,270,866,000 






Balance. 


$7 401 074 049 


Senator La Follette's "water" 


7 000 000 000 






Balance to represent the " upward " 


$401 074 049 


Capital available for all other construction of 309,218 miles of track. . . 


00,000,000,000 



As it would cost more than $30,000,000 for spikes, irrespec- 
tive of other fastenings, to attach the rails to the ties on 



16 ' 

309,218 miles of track, and more than $625,000,000 for the bal- 
last in which to imbed the ties, there can be no possible escape 
from the reductio ad absurdum. 

When one considers that the six items in the above table 
of cost merely represent the superstructure and ephemera of 
railways (and not all of these), which have to be continually 
renewed and replaced or they become defective or obsolete, 
amazement grows at the magnitude of Senator La P'ollette's 
error. Nowhere does the table include the real thing — the 
location, right of way, strategic position, grading, cuts, fills, 
bridges, tunnels, stations, freight houses, shops and other prop- 
erties and rights that make the railway the highway upon 
which the traffic of a mighty people moves with ever-increasing 
volume and despatch. These constitute from two-thirds to 
three-fourths of the value of the property of the railways used 
for the service of the American public today. Unlike the items 
in the table, right of way and location of railways are not 
subject to depreciation, but increase in value with each passing 
year with the increase in population and wealth of the United 
States. 

It is well for the Senator that the rule falsus in uno, falsus 
in omnibus does not apply to all senatorial utterances. 



17 
II 

WATER IN RAILWAY CAPITAL 

Nothing has served so continuously to darken counsel in re- 
gard to American railways as the glib charge that they impose 
extortionate rates in order to pay dividends on watered stock. 
It flows with equal fluidity from the lips of economist, agitator 
and demagogue, and it has been thus flowing so long that it 
has been accepted as true by a majority of the American peo- 
ple. In truth, it has ever been mostly a theory, never a gen- 
eral condition. 

Now, what is this "water" in railway capital which is .the 
subject of such popular opprobrium? 

Generally speaking it is used as a synonym for fictitious cap- 
italization — meaning that either stock or bonds or both have 
been issued for which no equivalent was paid, or is represented, 
and that the value of the property is not equal to the face value 
of these obligations. In this obvious sense its use is noted 
in financial literature early in the seventies and it is first recog- 
nized by Webster in his 1879 Supplement as "Brokers' Cant." 

In the Century Dictionary it is classed as "commercial slang," 
and is defined as follows : 

"To increase the nominal capital of a corporation by the 
issue of new shares without a corresponding increase of actual 
capital. Justification for such a transaction is usually sought 
by claiming that the property and franchises have increased in 
value so that an increase of stock is necessary in order to fairly 
represent existing capital." 

Legal writers define watered stock as a security issued as 
fully paid in, when, in fact, the whole amount of the par value 
thereof has not been paid in. 

Under both of these definitions it will be perceived that 
there may be legitimate and illegitimate watering of railway 
capital. But the term has been so persistently and offensively 
abused by critics and commentators, as well as detractors of 
American railways, that the distinction is lost in popular discus- 
sions of the subject. The public has been led to believe that 



18 

the increases in railway capitalization during the past thirl^y 
years have been largely fictitious; that they have been made 
to conceal large dividends on stock, and to forestall the de- 
mands for a reduction in rates. 

It matters little to the parties whose chief capital is denuncia- 
tion of watered stocks that, water or no water, the increase in 
net railway capitalization from about $7,000,000,000 to $11,671,- 
940,649 during the past twenty years has been accompanied by 
a reduction of freight rates from 1.04 cents to 7.48 mills per 
ton mile and of passenger rates from 2.19 cents to ::.oo2 per 
passenger mile. They will continue to cry "Water, water, 
everywhere !" in hopes that the discovery of a few cesspools 
in railway finance will convince the public that all sources of 
railway capitalization are polluted at the fountain head. 



Senator La Follette is not the only advocate of a valua- 
tion of American railways who professes to think that they 
are floating islands surrounded by oceans of water. Only last 
winter the Washington correspondent of one of our great dailies 
wrote to his paper that: 

"Every development of late shows that most of the big lines 
of railroads in the United States are vastly over-capitalized, 
some of them having a funded debt and capital stock issues 
amounting to from two to ten times their actual cost." 

The point of this watery delusion was put thus : "It is easy 
to see that if a railroad has been capitalized at a figure five or 
ten times its value it must meet a fixed charge five or ten times 
as great as it should be expected to meet." 

It will be observed that "actual cost" and "value" are here 
used as interchangeable terms and the illegitimate water in 
most of the big lines was said to be from 50 to 90 per cent. 

To well-informed readers the mere extravagance of such a 
statement carries with it its own refutation. But to the sus- 
picious, the prejudiced and the ignorant there is nothing in- 
credible about the most palpable and self-stultifying exaggera- 
tion. If Senator La Follette could carry off a seven billion 
dollar misrepresentation without question in the United States 
Senate, why should anyone hesitate to believe a statement that 



19 

for one part of cost there are nine parts of "water" in the 
capitalization of American railways? 

Neither must it be thought that this cry of "water" is any 
modern invention ! In one form or another it has been a con- 
tinuous chorus which has accompanied the floating of every 
railway enterprise since Colonel Stevens first sought to raise 
funds to construct a railway from the Delaware River to the 
Raritan in 1815. Every government or corporation issuing 
securities and selling them at a discount, whether at 90 per 
cent., as the German Empire has within six months, or at 50 
cents on the dollar, as some of the early American railways had 
to, has watered its capital stock to that extent. In his letter of 
August 24, 1897, classifying the items to be charged to cost 
of construction. Statistician Adams recognized its legitimacy 
in these words : "To this account should be charged discount 
on securities sold ; interest on loans affected, and on notes 
issued for construction purposes or overdue payments to con- 
tractors or other creditors, and discount, interest and exchange 
on other commercial paper issued for a similar purpose." 



When the first railway was built in the United States, money 
in a perfectly safe investment commanded 10 per cent, and 
upward. Neither then nor at any time since has railway con- 
struction appealed to investors as a perfectly safe investment. 
At the start, national, state and local authorities doubted its 
financial success more seriously than its practicability. They 
had absolutely nothing upon which to base a favorable judg- 
ment. Such assistance as they were finally induced to extend 
to the pioneer railways was in the nature of subsidies, land 
grants or guarantees, to encourage an experiment in transporta- 
tion rather than an investment made with any hope or expecta- 
tion of a monetary return. How railways were regarded in 
those days is well reflected in the report of a special Board of 
Commissioners to the Pennsylvania legislature in 1831 : 

"While the board avow themselves favorable to railroads 
where it is impracticable to construct canals, or under some 
peculiar circumstances, they cannot forbear expressing their 
opinion, that the advocates of railroads generally have over- 



20 

rated their comparative value. The board believe that notwith- 
standing all the improvements that have been made in rail- 
roads and locomotives, it will be found that canals are from two 
to two and a half times better than railroads for the purposes 
required of them by Pennsylvania. And they again repeat 
that their remarks flow from no hostility to railroads, for next 
to canals they are the best means that have been devised to 
cheapen transportation." 

In the beginning not only in New England and in some of 
the Southern States, as we are generally told, but throughout 
the Union, roads were largely built with money raised by the 
sale of stocks, and it was upon the security of these original 
investments and the rights thus secured that money was bor- 
rowed on bonds for their completion. In these cases share- 
holders were induced to subscribe on favorable terms that prom- 
ised more than the then current rate of interest on their money. 
Paid-up stock was issued at 75, 50 or even 25 cents on the dol- 
lar, according as the risk was great or slight, or the returns 
promised to be immediate or remote. The building of a road 
to connect centers of population and established trade relations 
had manifest elements of profitable traffic absolutely absent 
from the majority of railway enterprises that quickly engaged 
the speculative enthusiasm of that generation of railway projec- 
tors. 

American investors were quick to appreciate the difference 
between investments in railway bonds and railway stocks. They 
recognized that the stocks represented, as one writer (A. M. 
Wellington) puts it, "the risk only, the dubious margin which 
is dependent upon sagacity, skill and good management," while 
the bonds represented "a. certain minimum value," for which 
the property and all its hereditaments and potentialities were 
pledged. Upon this simple distinction grew up the practice 
of "sweetening" the sale of bonds with bonuses of stock. Bonds 
carrying 6 to 8 per cent, would be sold with different amounts 
of stock thrown in as a premium, the bond purchaser feeling 
sure of a share in the property in any event and being tempted 
to make the investment by the prospect of higher returns on 
the stock. 



21 

With many of the projected roads it was a case of "wood- 
chuck or no meat." Their projectors simply were forced to 
give bonuses with the bonds, sell the bonds at a heavy dis- 
count, make bricks without straw, or leave the roads unbuilt 
until some less conservative parties came along who had the faith 
and confidence that move mountains and build empires through 
the combination of capital and wisely directed energy. 

From 1830 down to this day there has never been a time 
when the ''sagacity, skill and good management" ever active, 
dominant and progressive in American railways, has not more 
than made up for any excess of nominal capital over capital 
actually paid in and expended on the property. But whether 
this be admitted or not, there is abundant evidence in the cost 
of the railways themselves that the par value of their capital 
in dollars and cents derived from some source has been ex- 
pended upon them. 



For three-quarters of a century the managers of American 
railways have followed the sound financial policy of reinvest- 
ing undivided profits in their properties. In lean years and 
fat alike this course has been pursued. Even when in the 
stress of hard times there have been no net profits and some 
roads have been thrown into receiverships, the process of en- 
richment has gone on with the proceeds of receivers' certifi- 
cates, which, with returning solvency, have gone to swell the 
funded obligations of the railroads. 

That the shareholders in American railways are entitled to 
be credited with the gross sum of these undivided profits turned 
back into the property as well as for all expenditures for better- 
ments, improvements and excess of cost of renewals, is admit- 
ted by every economist who has given the subject sober thought. 
The principle is precisely the same as that by which the thrifty 
individual instead of spending all he makes or earns invests 
a percentage of it to extend his business. The abstinence 
from distributing all the net earnings of railways among their 
hundreds of thousands of stockholders,* which is distinctively 

(*) The last official report put the number at 327,851. 



22 

an American policy, represents one of the factors in the crea- 
tion of wealth which has always been recognized by economists. 
In this case it accounts for the comparatively low capitaliza- 
tion of American railways in contrast to the British practice 
which has been to distribute all the net profits and charge all 
betterments and improvements to capital account. The low 
capitalization of American railways is due to the policy tersely 
expressed in the phrase, "A dollar for dividends and a dollar 
for betterments." 

Because the official statistics are confused by including the 
returns from non-operating railways, — which are in no sense 
legitimate subjects of interstate regulation, neither are they 
common carriers, for they carry nothing, — it is impracticable to 
give anything like a complete summary of the moneys expended 
annually by the railways on additions, betterments and im- 
provements. In the year 1906, however, the returns made to 
the Interstate Commerce Commission by 313 operating roads 
showed that 94 per cent, of the railways of the United States 
devoted no less than 

$220,316,034 
of their income to improvements "charged to income account,'* 
"other deductions" not chargeable to the operations of the 
year and in surplus. The income account of these roads in 
1906, considered as a system, may be summarized as follows: 



23 

Income Account, 1906 

(206,960 Miles of Line Represented.) 





$2,246,421,166 




1,482,148,334 










$764,272,832 




67,356,217 








VnmiTurq Ipos tn,Vf»=! 


$696,916,615 






Charges: 


$252,572,777 

13,819,287 

422,322 

116,144,978 








Interest on real estate mortgages 






$382,959,364 






Balance available for dividends, adjustments and im- 
prov6m.ents 




$313,957,251 


Dividends — Common 

Preferred 


$175,334,923 

46,005,909 

166,371 




Other payments 


$221,507,203 






Balance 




$92,450,048 








Deficits in operation of 76 unprofitable roads 




12,292,750 




$80,157,498 




140,158,136 










$220,316,034 






Disposition of balance: 


$56,502,413 
59,610,904 

104,202,717 




Other deductions 




Surplus .... 


$220 316 034 







The income from other sources is principally derived from 
rentals and from railway stocks and bonds owned by these 
operating roads, and practically takes care of the rents and 
interest charges on the debt incurred in the purchase of such 
securities. If these items of income and expense could be 
eliminated, the balance for improvements would not be mate- 
rially affected. 

During the past sixteen years the official statistics show 
the following balances "available for adjustments and improve- 
ments," the sums under "permanent improvements" being in- 
cluded in the total sum available in comparison Avith the net 
dividends in each year: 



24 



Investments in Improvements from Income During Sixteen 
Years 1890-1905. 



Year. 


For Permanent. 
Improvements. 


Available for 

Improvement 

and Adjustments. 


Net Dividends. 


1905 


$37,720,624 

38,522,548 

41,948,183 

34,712,968 

31,938,901 

25,500,035 

13,070,045 

6,847,905 

4,544,813 

5,162,240 

4,016,382 

4,418,003 

2,957,069 

4,128,273 

4,887,975 

4,511,508 


$185,088,372 

143,691,430 

190,856,993 

172,977,856 

150,392,692 

142,754,358 

92,719,113 

78,370,389 

20,300,720 

26,525,485 

(2) 1,001,805 

(3) 16,821,274 
37,045,024 
45,499,874 
40,721,296 
41,765,491 


$188,175,151 
183,754,236 
166,176 586 


1904 


1903 


1902 


157,215,380 
131,626,672 
118,624 409 


1901 


1900 


1899 


94 273 796 


1898 


83,995,384 
(1) 87 377,989 


1897 


1896 


88 097 757 


1895 


85,961,500 


1894 


101 607 264 


1893 


102,941 289 


1892 


101,929,135 


1891 


96 489,013 


1890 


89,688,204 






Total 


$264,885,472 


$1,289,709,898 


$1,877,933 765 







(1) Dividends previous to 1897 inclusive are swelled by duplications. 

(2) There was a deficit after paying for permanent improvements. 

(3) Deficit. 

Notv^ithstanding the fact that prior to 1897 the dividends were 
swelled by duplications amounting to at least $12,000,000 an- 
nually — in 1897 the exact figures were $12,245,480^ — it will be 
perceived that the undivided profits of the railways devoted 
to their betterment amounted to over three-fourths of the sum 
distributed in dividends. Nor does this showing, impressive 
as it is, tell the whole truth, for in the years 1894, 1895 and 
1897 in addition to the figures shown in the table the railways 
had to account for deficits of unprofitable roads amounting to 
$45,851,294, $29,845,241 and $6,120,483, respectively. 

During the years covered by the foregoing table the total 
amount of capital stock outstanding not owned by railway 
corporations has increased from $3,445,804,726 to $4,484,504,943 
or $1,038,700,217, which is almost exactly a quarter of a bil- 
lion ($251,009,681) less than the aggregate sum retained from 
the stockholders and devoted to the betterment of the property 
in that period. 

It is out of such persevering, constructive, progressive, 
American financiering as this that the railways have been nour- 



. 25 

ished by "water" into the admirable position of the lowest 
capitalized high standard railways in the world. 

And mark you, this does not complete the tale of their en- 
richment at the expense of the stockholders. In the year 1906, 
the 313 roads above mentioned expended on road and equip- 
ment $14,593,642 which was included in operating expenses, 
exclusive of expenditures in certain cases amounting to less 
than $100 on road, $300 on equipment, and not taking account 
of excess of weight of rails and improved quality in renewals 
on some of the largest systems in the country. This sum is 
equivalent to $70 per mile of line. Accepting this" as an 
average, and it is a low one, the railways of the United States 
in thirty years between 1875 and 1905 have paid over $300,000,- 
000 for improvements and charged it to operating expenses. 
Does anyone seriously question that this is a legitimate invest- 
ment of money belonging to stockholders? 

Between 1850 and 1900 the improved farm lands in the United 
States increased from 113 to 414 million acres, or considerably 
less than fourfold. In the meantime the value of all farm prop- 
erty increased from $3,967,343,580 to $20,439,901,164, or more 
than fivefold. The average value per acre of all farms has 
risen from $13.50 in 1850 to $25 in 1900, making a difference 
of over $8,000,000,000 in the wealth of American farmers, com- 
pared with wdiat it would have been at the prices of fifty years 
ago. Would anyone call this vast accretion of wealth "water" 
because chiefly due to the railways and not represented by 
any equivalent capital invested in farms, except out of surplus 
earnings? 



Each generation of railway critics has found some particular 
American road to single out as the terrible example of over- 
capitalization. It used to be the Erie. Now it is the Chicago 
and Alton Railway that is the target of this unenviable noto- 
riety. Twenty-six years ago the Chicago and Alton's total 
capital account, covering 840 miles of main line, was $37,821,727 
or $45,239 per mile. If divided by the miles of all tracks it 
was equal to $35,629, and President Blackstone frequently 
claimed that the Alton was capitalized at only 60 per cent, of 



26 

its accumulated cost. Twenty-six years ago its disbursements 
on account of funded debt, rent and dividends amounted to 
$2,624,446, or nearly 7 per cent, on its total capital account, 
which covered the leased lines. 

Last year the capital liabilities of the Chicago and Alton were 
$119,046,218, or $122,728 per mile of line, or $83,658 per mile 
of all tracks. The reader will perceive that the capital per mile 
of line had been nearly trebled while per mile of track it had 
been only slightly more than doubled. 

Such are the incomplete facts coupled with sensational stories 
of fortunes made through manipulations that have filled the 
press with a perfect deluge of charges of "water." These it 
is not necessary to discuss now. Here it is sufficient to say 
that the total annual disbursements on account of this gross 
capitalization foots up $3,468,528, or 2.92 per cent Moreover, 
these capital disbursements in 1906 amounted to only $2,347 
per mile of track, where the like disbursements in 1880 amounted 
to $2,473, ^^^ i^ 1S70 to $3,028 per mile of track laid with 56 
to 65 lb. iron rails. 

Paradoxical as it must seem to the economists of the hydro- 
pathic school, the increased capitalization of the Chicago and 
Alton has been attended by a remarkable decline in the rates 
paid by the public both for passengers and freight, as the fol- 
lowing statement shows : 





PERIODS OF 




Low Capital. 


High Capital. 




1874 (a) 
Cents. 


1880. 
Cents. 


1906. 
Cents. 


Passenger receipts per mile. 


3.267 
2.123 


2.076 
1.206 


2 05 




639 







(a) Passenger and ton mile units first available for 1874. 



Evidently the "water" in the Chicago and Alton, like the 
paints of the master artist, must have been "mixed with brains" 
to produce such results, and its patrons, if not the "social agi- 
tators," have reason to await the next shower with equanimity. 



27 

It was Judge Thomas M. Cooley who first directed attention 
to the danger of arousing popular hostility against railway 
management because great private fortunes had been amassed 
in their control. "The natural conclusion," he said, in his first 
report as chairman of the Interstate Commerce Commission, 
"which one draws who must judge from surface appearances 
is, that these fortunes are unfairly acquired at the expense of 
the public; that they represent excessive charges on railroad 
business, or unfair employment of inside privileges, and fur- 
nish in themselves conclusive evidence that current rates are 
wrong and probably extortionate. An impression of this sort, 
when it happens to be wide of the fact, is for many reasons un- 
fortunate. It creates or strengthens a prejudice against all rail- 
road management — the honest as well as the dishonest — which 
affects the public view of all railroad questions ; it renders it 
more difficult to deal with such questions calmly and dispas- 
sionately; it makes the public restive under the charges they 
are subjected to, even though they be moderate and necessary; 
it tends to strengthen a feeling among the unthinking that cap- 
ital represents extortion. However careful, considerate, fair and 
just the management of any particular road may be, and how- 
ever closely it may confine itself to its legitimate business, it 
is impossible that it should wholly escape the ill effects of this 
prejudice, which are visited upon all roads because some con- 
spicuous railroad managers have by their misconduct given 
in the public mind a character to all." 

Throughout every period of the development of American 
railways, economists, theorists and agitators have been so in- 
tent on watching the black spots on the system as revealed in 
Wall Street speculations and financial crises that they have over- 
looked its underlying sanity and solvency. Even such an 
eminent authority as Charles Francis Adams failed to properly 
emphasize the fact that it was overconstruction and not over- 
capitalization that brought about the financial disasters of the 
seventies. He recognized that "the mania for construction, 
which began in 1866 and culminated in the crash of 1873," had 
outstripped the business needs of the country, but he reserved 
his severest criticism for the gross scandals that disgraced the 



28 

management of some of the companies. Morally he was right, 
and no strictures could be too harsh for the jobbery that pre- 
vailed in railway speculation. But through the worst of it the 
railways of the country went steadily forward, some with water 
and some without, giving the American people constantly im- 
proved service at constantly declining rates. 

Then as now the railways were entitled to be judged by 
their general performances and not by the misdeeds of their 
black sheep. In the very heat and stress of the Granger move- 
ment, when the railway companies were compared with the 
feudal barons as levying iniquitous taxes upon the commerce 
of the country, they were not paying extravagent nrofits on cost 
of construction, they were not over-capitalized and the rates 
charged to shippers had been steadily declining for three de- 
cades. 

In 1873 the railways of the United States were over-con- 
structed but not over-capitalized. Today they are both under- 
constructed and under-capitalized, but the facts have been so 
misrepresented that the springs of fresh capital are dried up by 
popular and legislative hostility. A year ago the railways were 
in a position to borrow money for much needed improvements 
and extensions upon reasonable terms. Today they are forced 
to abandon their extensions or make loans upon terms that to 
the ignorant will have a watery, if not a usurious aspect. 

Easy chair economists may disapprove of it, but it is a 
sounder policy for a railroad to borrow money at 3 per cent, 
and issue an equivalent amount of stock as a bonus to obtain 
the loan, than to sell a 6 per cent, bond for the same amount. 
The funds realized are the same, but in the former case the 
fixed charge is less and the stock affords an incentive to its 
holders to employ the ability, energy and industry necessary 
to the financial success of the property. Such water is as nec- 
essary to the building of a new railroad or the healthy develop- 
ment of an old one as blood, which is more than nine parts 
water, is to the human body. 



29 



III 

HISTORY OF AMERICAN RAILWAYS 

"The inventor of the railroad onght to be ranlieil among the chief builders 
of ihe American Union." — John Fiske. 

If there are canals all over the face of the planet Mars it 
must be because there are no railways in Mars. But for the 
inspiration of James Watt and the genius of George Stephenson 
we might still be as dependent on canals for artificial water- 
ways as were the almost human beavers before Venice was 
mistress of the seas and the internal transportation of Holland 
was the envy of less favored nations. 

It is impossible for the present generation to realize what 
it owes to the railways, which, with their bands of steel, fairly 
bind the United States in an indissoluble union, without a glance 
back at the conditions prevailing on this continent before their 
introduction. Between the first English settlement of Virginia, 
whose tercentennial we are now celebrating, and the building 
of the first real railway from Baltimore to Ellicott's, not a step 
forward had been taken to expedite communication any con- 
siderable distance away from tidewater and navigable rivers. 
The first practical steamboat had made its appearance on the 
Clyde in 1802. Five years later it took Robert Fulton's Cler- 
mont 32 hours to make the trip from New York to Albany — 
an average speed of less than 5 miles an hour. 

In 1818 the first steamboat crossed the Atlantic in 26 days 
^a feat which has been accomplished by sailing vessels in 
practically half the time. 

In the matter of land transportation the world in the cen- 
turies between had not improved upon the road making of the 
Romans. No advance had been made on the motive power of 
the horse, the sure-footed pack mule and the hump-backed 
"ship of the desert." At the opening of the 19th century, as 
now, the United States, standing in greater need of internal 
means of transportation than any other country on earth, had 
the poorest public roads of any civilized community. 

That we may fully appreciate the physical conditions in the 



30 

republic before the railways came to bind it into a physical 
as well as a political union of sovereign states, let me present 
them as described in a few salient paragraphs culled almost at 
random from Henry Adams' "American History During the 
First Administration of Thomas Jefferson." No running com- 
ment is necessary to suggest the contrast: 

"According to the census of 1800 the United States of America 
contained 5,308,483 persons" — one-fifth of them negro slaves. 

"Even after two centuries of struggle the land was still un- 
tamed. 

"The center of population rested within eighteen miles of 
Baltimore. 

"Except in political arrangement, the interior was little more 
civilized than in 1750 and was not much easier to penetrate 
than when LaSalle and Hennepin found their way to the Mis- 
sissippi more than a century before. 

"A great exception broke this rule. Two wagon roads crossed 
the Alleghany Mountains in Pennsylvania; while a third passed 
through Virginia southwestward to the Holston River and Knox- 
ville in Tennessee. 

"Nowhere did eastern settlements touch the western. At 
least one hundred miles of mountainous country held the two 
regions everywhere apart. The shore of Lake Erie, where alone 
contact seemed easy, was still unsettled. 

"The same bad roads and difficult rivers, connecting the 
same small towns, stretched into the same forests in 1800 as 
when the armies of Braddock and Amherst pierced the western 
and northern wilderness. 

"Even by water, along the seaboard, communication was as 
slow and almost as irregular as in colonial days. The voyage 
to Europe was comparatively more comfortable and more regu- 
lar than the voyage from New York to Albany. 

"If America was to be developed along the lines of water 
communication alone, by such means as were known to Eu- 
rope, Nature had decided that the experiment of a single re- 
publican government must meet with extreme difficulties. By 
water an Erie Canal was already foreseen; by land, centuries 
of labor could alone conquer those obstacles which Nature per 



31 

niitted to be overcome. Highways furnished no sure measure 
of progress. No matter how good the road, it could not com- 
pete with water, nor could heavy freights in great quantities 
be hauled long distances Avithout extravagant cost. 

"At any known rate of travel Nashville could not be reached 
in less than a fortnight or three weeks from Philadelphia. 

"Politically each group of States lived a life apart. 

"In the Northern States, four miles an hour was the aver- 
age speed for any coach betv/een Bangor and Baltimore. Be- 
yond the Potomac the roads became steadily worse, until south 
of Petersburg even the mails were carried on horseback. 

"Of eight rivers between Monticello and Washington, Jeffer- 
son wrote, 'five have neither bridges nor boats.' 

"The usual charge (for passengers) in the Northern States 
was six cents a mile by stage. 

"The Saxon farmer of the eighth century enjoyed most of 
the comforts known to Saxon farmers of the eighteenth. 

"Fifty or a hundred miles inland more than half the homes 
were log cabins, which might or might not enjoy the luxury 
of a glass window."* 

"As a rule American capital was absorbed in shipping or 
agriculture, whence it could not suddenly be withdrawn. No 
stock exchange existed, and no broker exclusively engaged in 
stock-jobbing, for there were few stocks. 

"A probable valuation of the whole United States in 1800 
was $1,800,000,000, equal to $328 for each human being, includ- 
ing slaves; or $418 to each free white. 

"Taxes amounted to little or nothing, and wages averaged 
about a dollar a day." 



Such, in brief, is Mr. Adams' 'description of the conditions 
prevailing in the United States at the beginning of the nine- 
teenth century. That they had been but little bettered prior 
to the advent of railways is the testimony of other historians, 
from De Tocqueville down. The observant philosophic French- 

(*) In passing it may be noted that in 1809 Abraham Lincoln was born in one of these log 
cabins without the luxury of a glass window. 



32 

man whose "Democracy in America" was published in 1835, 
found that, 

''The valley of the Mississippi is, upon the whole, the most 
magnificent dwelling place prepared by God for man's abode; 
and yet it may be said that at present it is but a mighty desert." 

Daniel Webster, with oratorical license, ridiculed the possi- 
bility of the present State of Washington becoming a part of 
the Union, on the ground that a Senator elected from that State 
could not reach the national capital before the expiration of his 
term of office. Today Senator Foster can reach Washington 
from Taconia in half the time it took Webster to get to Wash- 
ington when first elected to the Senate from Massachusetts. 

From the dawn of civilization canals had been the means 
by which man had sought to supplement Nature's waterways 
in the transportation of merchandise, especially of a bulky or 
heavy nature. There were canals in Egypt seventeen centu- 
ries before Christ, and a canal mania raged in England seven- 
teen centuries after that central event in the upward progress 
of mankind. 

The first canal opened in the United States was that con- 
necting Boston with Concord river in 1804. But the active 
period of canal digging did not come until later when, in 1825, 
the Erie Canal was opened from Albany to Buffalo. This was 
the cause of universal rejoicing throughout the country. Be- 
gun in 1817, eight years and between eight and nine million 
dollars were spent in its completion. Although it was 352 miles 
long and 40 feet wide at the top, it was so shallow — only 4 feet 
— that it was irreverently spoken of as the longest and most 
expensive gutter in the world. 

The joyful tidings of its official opening was boomed to 
New York by relays of cannons in 80 minutes — which was 
transmitting the news with an approach to lightning rapidity 
for those days. 

By means of this marvel of early American energy three 
fast-walking horses were enabled to draw a canal boat four 
miles an hour, and we read that "At the end of the fourth 
day from Schenectady the jaded traveller reached Buffalo." But 
more important was the fact that, where previous to the build- 



33 

ing of the canal "it cost $5 and 30 days to ship 100 pounds from 
Philadelphia to Columbus, Ohio, after it opened the time was 
reduced to 20 da3^s and the cost to $2.50!" In every way it 
answered the expectations of its enthusiastic projectors, whose 
enterprise was repaid by seeing its business double during the 
first seven years. 

In 1835 the Erje canal, at a cost of $25,000,000, was enlarged 
to 70 feet wide at the top and 40 at the bottom. It had been 
deepened to 7 feet and provided with 72 locks. This raised 
its aggregate cost to about $34,000,000, or $97,000 per mile, an 
expenditure fully justified by the results. By 1852 its receipts 
reached $3,000,000 a year, or nearly three times what they 
were in 1826. In the meantime its tolls had been reduced to 
one-third the original charges. Then began its struggle with 
railway competition, lasting until 1871, when it finally failed to 
pay expenses of maintenance. In spite of this demonstration of 
the impotence of canals to cope with railways, the legislature 
of New York has not hesitated to renew the contest by ex- 
pending $100,000,000 for the enlargement and improvement of 
the old waterway. 



Judge Cooley has summed up the result of the struggle be- 
tween waterways and railways in the memorable words: "The 
experience of the country has demonstrated that the artificial 
waterways can not be successful competitors with the railroads 
on equal terms." 

Just as the American people, with characteristic energy, were 
projecting canals in every direction, George Stephenson suc- 
ceeded in demonstrating the feasibility of substituting steam 
for horses in the propulsion of cars on rails. When he com- 
bined the escape-steam blast, which provided the draft neces- 
sary for a hot fire, and the tubular boiler to multiply the heat- 
ing surface, the knell of canals on this continent was struck, 
although many years were to elapse before it was realized. 

in 1825, the same memorable year that saw tne opening of 
the Erie Canal, the Stockton and Darlington railway was opened 
for passengers, and in 1829 Stephenson's locomotive, the "Rock- 



34 

et," attained a speed of 29^ miles an hour. It was this feat of 
speed that hastened the struggle with the slow-going canal boat, 
and no thought as to the locomotive's efficiency in drawing heavy 
loads — something not dreamed of in the minds of engineers ex- 
perimenting with engines weighing from 3 to 7 tons — the lighter 
machines having the preference for American roads. The im- 
possibility of canals responding to the American passion for 
speed finally sealed their fate, outside the deliberationij of politi- 
cal conventions and legislative bodies. 



The United States is most truly a land of "magnificent dis- 
tances." Before the era of railways its inhabitants were almost 
as isolated, so far as means of rapid communication were con- 
cerned, as were the different tribes which roamed the continent 
before the voyage of Columbus. The horse or mule power 
canal boat was ''slow freight" compared with the swift moc- 
casin shod despatch bearer of Pontiac. The almost magical 
transformation that came across the physical possibilities of the 
United States with the introduction of the steam locomotive has 
given to the genesis of the American railway an increasing 
fascination for American historians. To them the fact that the 
first tram-road was built from the granite quarries at Quincy, 
Mass., to Neponset river in 1826 to transport stones for the con- 
struction of Bunker Hill monument obscures the fact that it was 
not a railway in any true sense, being merely a quarry road 
operated by gravity and horse power. It was not even the first 
of its kind in the United States and never rose to the dignity 
of a railway until purchased by the Old Colony Railroad Com- 
pany in 1872. Then for the first time its relaid T rails felt the 
swift triumphant tread of locomotive wheels. 

Another gravity road frequently mentioned in the early his- 
tories of American railways was built at Mauch Chunk, Penn- 
sylvania, in 1827, and still another for the Carbondale and 
Honesdale Railroad the following year. It was on the last 
named road that the first locomotive used in the United States, 
the "Stourbridge Lion," built in England, had its trial trip. 
Although its weight is stated as only 6 or 7 tons, it was found 
too heavy for the primitive tracks of those days. 



35 



To the Baltimore and Ohio belongs the credit of being the 
first American railway designed and built for both passenger 
and freight traffic. At the ceremony of breaking ground for 
this road on July 4, 1828, Charles Carroll of Carrollton, then 
in his 92d year, said, ''I consider this among the most important 
acts of my life, second only to that of signing the Declaration 
of Independence, if even second to that." He lived to see it 
completed to the Point of Rocks, 73 miles from Baltimore. Origi- 
nally operated as a horse railroad, the Baltimore and Ohio was 
the scene of the celebrated contest between a horse drawn car 




Peter Cooper's Locomotive, 1830. 



and the experimental locomotive, Tom Thumb, built by Peter 
Cooper. Unfortunately for the engine, the belt that worked 
Mr. Cooper's contrivance for blowing the fire slipped off the 
drum at a critical stage of the race, and before it could be re- 
adjusted the ''gallant gray" of the story came in an easy win- 
ner. But even in this contest the ''iron horse" demonstrated 
its superiority, barring accidents, over the horse which for ages 
had been the recognized symbol of power and speed. The Balti- 
more and Ohio road was opened for traffic for 14 miles in 1830 — 
the year Abraham Lincoln left his mother's log cabin to shift for 



36 

himself. Within the past eight years the original main line be- 
tween Relay, 9 miles from Baltimore, and Washington Junction 
has been entirely reconstructed, including the straightening of 
curves and a reduction of grades, at a cost of over $3,000,000, 
or $52,000 per mile. 

To Colonel John Stevens of Hoboken seems to be due the 
high honor of being the first conspicuous American persistently 
to urge the construction of locomotives on railways for long 
distance transportation on this continent. He built and ran a 
steamboat nine years before Fulton built the Clermont, and also 
patented a multi-tubular boiler as early as 1803. Stevens built 
and operated the first engine that ever ran on wooden tracks in 
the United States. As early as 181 1 he had applied to the legis- 
lature of New Jersey for a railroad charter. Disappointed in 
this application, he endeavored to persuade the Erie Canal 
Commissioners, then just appointed in New York, to build a 
railroad instead of a canal across the state from Albany to 
Buffalo. Failing of this, he again applied to the law makers 
of his own state, and this time, in 1815, secured the first railroad 
charter in the New World, to build a road to join the Delaware 
and Raritan rivers, connecting at either end with steamboat 
lines for Philadelphia and New York. His road did not ma- 
terialize, for the same reason that for yet a dozen years was 
to nip in the bud many similarl}^ promising projects — lack of 
confidence, credit and capital. Investors were not yet ready to 
assume the risk of placing their money in an enterprise where 
the investment was certain and irrevocable but the profits were 
still problematical. In those days the necessary funds had to 
be secured by selling securities at a discount. 

Turned down by New York and having made a "dry haul" 
in New Jersey, Colonel Stevens next directed his attention to 
Philadelphia, where, tlirough the aid of some of its business 
men, in 1823 he secured a charter to build a railroad from Phila- 
delphia to Columbia, a town on the Susquehanna twenty-seven 
miles south of Harrisburg. Some of the privileges granted in 
this charter, says MacMasters, seem curious enough. "The 
charter was to be in force for ten years; the rails were to cross 
all pikes and roads on causeways and the company might charge 



37 

seven cents a ton per mile on freight moving westward, and half 
that sum on freight bound east." 

Although this charter was subsequently repealed and the State 
of Pennsylvania itself assumed the task of building a railroad 
from Philadelphia through Lancaster to Columbia, the charter 
to Stevens, with its provisions for a seven cent rate per ton 
mile, is worth recalling for the contrast it affords with the rate 
of the Pennsylvania Railroad Company of 59/100 of a cent in 
1906. Before .1830 the potentialities that lay behind railroads 
were fully recognized, but the means to grasp the opportunity, 
namely — monc} and labor, were scarce and almost Impossible 



Rich as the histories of those early days are in stories and 
incidents showing with what persevering enthusiasm and in- 
genuity that generation of Americans approached the task of 
adopting and adapting the railway to the needs and conditions 
of the country, they are singularly shy of accurate data as to 
the cost of construction. Somewhere it is told that the four 
miles of the Quincy tramway cost ''about $34,000'' or $8,500 
per mile. With nice exactness we know that the first powerful 
7-ton Stephenson locomotive brought to this country "cost $4,- 
869.59, including freight, duties and insurance." We know that 
the first railways consisted of local lines built generally to con- 
nect waterways, that they sought level routes, that they avoided 
steep grades; that Colonel Stevens had to build a circular rail- 
way to demonstrate that a locomotive could haul a train around 
curves; that the first rails were long wooden stringers protected 
on the top from the wxar of the wheels by strap iron nailed on, 
and that the locomotives only weighed a few tons and gave 
more promise of speed than of tractive power. Engineers still 
doubted the adhesion of a smooth wheel on a smooth rail. There 
were no through routes in 1830, the longest road actually under 
construction being from Charleston 135 miles to Hamburg, 
South Carolina. 

We know that the country highway of those days cost from 
$300 to $500 to build and the rate to move a ton mile on it was 
about 25 cents. 



38 



We know that the early turnpikes cost from $3,000 to $5,000 
and reduced the cost of moving a ton to .20 cents a mile, at which 
figure the average rate stands today. According to a recent 
bulletin of the Bureau of Statistics the present team haul cost to 
agriculture averages 23 cents per ton mile, the average on wheat, 
corn and oats beiijg 19 cents, fruit and vegetables from 28 to 
31, and on cotton 2j cents per ton mile. 

But we do not know whether the first railways cost more or 
less than the $25,000 a mile of the original Erie four foot gutter. 
All we do know of them in this respect is that the opportunity 
for them was as broad as the continent, the necessity for them 
apparent, the demand for them insistent and imperative, while 
the money with which they were financed had to be borrowed 
mostly in England and Europe at 8 to 10%, and everything that 
went into their construction had to be brought from abroad or 
built at home in primitive fashion. The inevitable discount on 
the sale of securities was the "water" without which American 
railways could not have been built. 

The final picture of the condition of the United States before 
the railways came to bind its isolated communities into one 
homogeneous nation is afforded by the National census of that 
year : 



United States Census, 1830. 



Alabama 


309,527 

30,388 

297,675 

76,748 

34,730 

516,823 

157,445 

343,031 

687,917 

215,739 

399,455 

447,040 

610.408 

31,639 

136,621 


Missouri 


140 455 


Arkansas 

Connecticut 


New Hampshire 

New Jersey 


269,328 
320,823 


Delaware 


New York... 


1,918,608 


Florida 


North Carolina 


737,987 


Georgia 


Ohio 


937,903 


Illinois 


Pennsylvania 


1,348,233 


Indiana 


Rhode Island 


97,199 


Kentucky 


S. Carolina 


581,185 






681,904 


Maine 




280,652 






1,211,405 


Massachusetts 


District of Columbia 

U. S. Sailors and persons sta- 


39.834 








5,318 




- 
Total 






12,866.020 









The omissions of this table are its most significant features. 
Where are the great states of California, Colorado, Idaho, Iowa, 



39 



Kansas, Minnesota, Montana, Nebraska, Nevada, the Dakotas, 
Oregon, Texas, Utah, Washington, Wisconsin, Wyoming, Okla- 
homa and the territories? They were waiting for the railways; 
and most of them had to wait three decades longer before they 
knew the real rush of settlers which came when the railways, 
with admirable boldness, ventured to build into the wilderness, 
in many instances before the Indians had finally left it. 



Before closing this brief story of the beginnings of American 
railways, it may be permitted to pass in review their first steps 
toward the conquest of the continent. 

As its name implies, the Baltimore and Ohio was chartered 
to build a railway from the city of Baltimore to the Ohio river, 
a distance of over 300 miles. It did not reach its destination 
until 1853. Only half the distance, with a branch to Washing- 
ton, was completed within the first decade. 




Dk Witt Clinton Engine and Tkain, . 
At the Opening of the Mohawk and Hudson Railroad September, 1831. 

When the State of Pennsylvania took the construction of the 
Philadelphia and Columbia railway off the hands of Colonel 
Stevens' company, the line was located in 1828 and construc- 
tion commenced in the year following. This was the first rail- 
•way work unaertaken by a State government. About twenty 
miles at the eastern end was opened for travel in 1832 and by 
1834 the entire line, with two tracks, was completed. Both 
passenger and freight cars were owned by individuals or com- 
panies, who furnished the horses or mules to haul them, paying 
the State toll for the use of the road. At first the State owned 
two locomotives and the number was increased so that by 1834 
animal power on the long stretches of the road was discon- 
tinued. A regular toll was charged by the State for the use of 
its locomotives. 



40 



McMasters' description of the trip west over this early state 
road gives a vivid summary of the hybrid railroad and canal 
travel in the early thirties. 

"It was then the custom," says the historian, ''for travelers 
going west from Philadelphia to leave their names and addresses 
with the agent of some transportation line the day before de- 
parture, in order that the ''bus" which went the rounds of the 
city early every morning should call for and carry them and 
their baggage to the depot. Once there the passengers were 
hurried into the cars which were coupled in pairs, their luggage 
was piled on the roofs, and the little trains were hauled by horses 
to the foot of an inclined plane on the west bank of the Schuyl- 
kill River near Belmont. Up this plane they were pulled by 




Thh "Old Ironsides," 1832 
Baldwin's First Locomotive. Weight 5 Tons. 

a stationary engine and rope, and when all were at the top the 
train of ten or a dozen cars was attached to a little puffing, 
wheezing locomotive without a cab, without a brake, and whose 
tall stack sent forth volumes of smoke mingled with red-hot 
cinders. But this was nothing to what happened when the 
train, rolling along at a rate of nine miles an hour, crossed a 
bridge. In those days the floors and trusses of such structures 
were protected by roofing them over and boarding up the sides 
almost to the eaves. To raise the roof so high above the rail 
that the tall stack of the locomotive might pass under would 
have been costly. The stacks therefore were jointed, and when 
crossing a bridge the upper half was dropped down and the 



41 



whole train was enveloped in a cloud of smoke and live cinders. 

"A ride of five or more hours, according as the rails were dry 
or wet, brought the travelers to Lancaster, where they spent 
the night, and at four the next morning were up and ready 
to go on. No necessity existed for so early a start, for the dis- 
tance from Lancaster to Columbia was but twelve miles and 
the travelers could not leave Columbia till four in the after- 
noon. But as they had been fed and sheltered at the hotel at 
Lancaster, it seemed fair that the Red Lion at Columbia should 
have them at breakfast and dinner. 

"At Columbia the railroad ended and the canal began, and 
there, every week day about four in the afternoon, a few blasts 
on a horn gave warning that the packet was ready to start. The 
canal wound along the east bank of the Susquehanna to a point 
opposite the mouth of the Juniata, crossed by a viaduct to the 
west shore, and went up the valley of the Juniata through most 
beautiful scenery to Hollidaysburg at the foot of the Alleghany 
Mountains. There canal navigation ended. There the traveler 
spent the night of the second day after leaving Lancaster and 
early next morning began a journey which none but the boldest 




Passenger Coach Used on the Portage Rait.road Over the Alleghany 
Mountains in 1835. 



ventured to take over the portage railroad. The cars were 
drawn by horses from Hollidaysburg some four miles to the 
foot of inclined plane No. lo. An endless rope passed up the 
middle of the right-hand track, around a series of great drums 
at the top, down the left-hand track and around other drums 
to the foot of the right-hand track. Made fast to this rope, the 
cars, two at a time, were pulled up the incline to level No. 
ID. Along this they were drawn by horses to the foot of in- 



42 

cline No. 9, and by repetitions of these processes to the summit 
of level No. 6, which crossed the crest of the mountain. 

"The traveler was then fourteen hundred feet above the canal 
at Hollidaysburg, and was about to be lowered eleven hundred 
and seventy-one feet by another series of inclined planes and 
levels to the basin of the Western Canal at Johnstown. Level 
No. 2 was fourteen miles long-, passed through wild and beauti- 
ful mountain scenery and the longest tunnel in the country. 
Another incline and another level, four miles long, brought the 
traveler to Johnstown. There a change was made from railroad 
cars to a oanal packet boat, which passed down the valleys 
of the Kiskiminetas and the Alleghany to Pittsburg." 



This description of a journey which consumed five days where 
the Pennsylvania covers the same distance in seven hours, fairly 
represents the contrast between travel only 70 years ago and 
today. In 1851 the State commenced the construction of an- 
other line to avoid the ten inclined planes across the Alle- 
ghanies, but in 1857 before the work was completed sold both 
the old and the new portages and the canal sections to the 
Pennsylvania Railroad Company, which had previously built 
its own line across the mountains. In 1858 the State disposed 
of its remaining canals and abandoned its system of transporta- 
tion. But who will say that all that the State of Pennsylvania 
paid and sank in its experiments with government ownership 
and operation of this great transportation undertaking is not 
properly to be reckoned as a £art, and a very essential part, 
of the cost of construction of American railways. The fact 
that the road and canal were sold for a song compared with 
their cost, and that scarcely a vestige of the State venture, ex- 
cept right of way, remains of service to the public today does 
not wipe out the obligation of the original investment. Be- 
sides, the people of the United States in our day are millions 
richer for the pioneer work of the State which a great railway 
company subsequently had to reconstruct or abandon to perfect 
its magnificent service across the Alleghanies. 



43 

How subsequently the railroads pushed their way westward 
until they reached the Pacific is thus summarized in a para- 
graph from Poor's Manual for 1870-71. 

"In 185 1 the Erie Railroad was opened from the Hudson to 
Lake Erie — an event of first rate importance in the history of 
our railroad enterprises. In the following year the completion 
of the Michigan Central and Michigan Southern lines carried 
the railroad system of the country as far west as Chicago.* 




The Reconstructed "Pioneer" of the Chicago & Noethwestern, This 
10 Ton Locomotive Reached Chicago by Schooner Oct. 10, 1848. 

In 1854, this system was carried to the Mississippi River 
by the completion of the Chicago and Rock Island Railroad. In 
1853, The Baltimore and Ohio Railroad was completed to the 
Ohio River, at Wheeling. In 1854, the Pennsylvania Railroad 
was completed to Pittsburg. In 1856, the Illinois Central Rail- 
road was completed from Chicago to the Mississippi River, at 
Cairo. The Chicago, Burlington and Quincy Railroad was 
opened to Quincy in 1856. The Pittsburg, Fort Wayne and 
Chicago, extending the Pennsylvania Railroad to Chicago, was 
completed in 1858. In 1859, the Hannibal and St. Joseph Rail- 
road was extended from the Mississippi to the Missouri. In 
1866, the Cedar Rapids and Missouri was completed to the 
Missouri River opposite Omaha. In 1867, a line of railroad was 
formed between Chicago and St. Paul, Minnesota; and in 1869, 
by the completion of the Pacific Railroad — the greatest enter- 
prise of the kind ever yet achieved — a continuous line of rail- 
way was formed from the Atlantic to the Pacific Ocean, a dis- 
tance of nearly 3,500 miles." 

*Lake Michigan and not Chicago was the original objective of these roads. 



44 

In concluding his review of the thirty years of railway achieve- 
ment in America prior to 1870, the editor of Poor's Manual in 
that year said: ''The early roads, as already rem.arked, were 
neither designed nor adapted to serve the purpose of commerce 
so much as of travel. The frail works first constructed were by 
no means adequate to a heavy merchandise traffic. Ihey were 
constructed with longitudinal sills covered with thin flat bars 
of iron. With such structures, neither high speed nor heavy 
trains were possible." 



And yet the early roads were as adequate to the traffic of 
1870 as the roads and equipment of 1870 would be to the traffic 
of 1907. The ''early roads" revolutionized the transportation 
system of the United States; they made its remote places as- 
cessible ; they brought millions upon millions of acres of wilder- 
ness, prairie and forest within the radius of man's dominion ; 
they enabled the union of the states to expand from ocean to 
ocean; they brought the American farm and factory within 
trading distance of foreign markets; but without another revolu- 
tion, in w^hich they have been reconstructed from Portland to 
San Diego, the railways of 1870 would no more have been able 
to handle the traffic of 1907, they have been chiefly instrumental 
in creating, than would Peter Cooper's "Tom Thumb" have been 
equal to hauling a passenger train of 1876 from San Francisco 
to the Centennial at Philadelphia. 

Wooden bridges, strap rails and dirt or gravel ballast sufficed 
for the earlier traffic of American railways. Before 1870 these 
had given place to iron bridges, 56 lb. iron T rails and some 
broken stone ballast as traffic expanded. And these in turn 
have been superseded by steel or masonry structures, 70 to too 
lb. steel rails and more carefully prepared road beds to meet 
modern demands. 

In 1835 it would have taken something more than human 
prescience to have foreseen such a growth as is shown in the 
following table of way freight on the Camden and Amboy rail- 
road, 1 83 5- 1 869: 



45 



Way Freight on the Camden and Amboy 1835 to 1869. 



Year. 


Tons Carried. 


Year. 


Tons Carried. 


1835 


1,451 
3,356 

7,480 
20,515 


1855 


71,764 


1840 . . . 


I860 


83 543 


1845 

1850 


1865 

1869 


182,541 
429,029 



In 1906 the United Railroads of New Jersey division of the 
Pennsylvania Railroad, into which the Camden and Amboy was 
merged, carried a total of 30,732,210 tons. 

The miracle of such revolutions in ability to handle traffic, 
common throughout the country, is that it has been accomplished 
without material increase, if any, to the net capitalization of 
American railways per mile. Millions of dollars were expended 
to bring the original roads up to the requirements of 1870, and 
other millions have been spent to bring the roads of 1870 up 
to the standard and performance of today, while the net cap- 
italization stands at $54,421 per mile against a gross of $59,- 
726 in 1870, when intercorporate holdings were comparatively 
insignificant. 

With 1870 the historical review of American railways ends, 
and the period of comprehensive statistics begins. This may 
be prefaced with a table showing the mileage of American 
railways by states in successive decades : 



46 



Mileage of Railways in the United States by States 
Since 1841. 



1841. 



1850. 



I860. 



1870. 



1880. 



1890. 



1900. 



1905. 



Alabama 

Arkansas 

California 

Colorado , 

Connecticut , 

Delaware 

Florida 

Georgia 

Idaho 

Illinois 

Indiana 

Iowa... 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts. . . 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New Hampshire. 

New Jersey 

New York 

North Carolina. . 
North Dakota. . . 

Ohio 

Oregon 

Pennsylvania . . . 
Rhode Island. . . 
South Carolina. . 
South Dakota. . . 



Texas 

Utah 

Vermont 

Virginia 

Washington 

West Virginia 

Wisconsin 

Wyoming 

Arizona 

District of Columbia. . 

Indian Territory , 

New Mexico 

Oklahoma 



United States. 



46 



102 
39 



271 



22 



28 

40 

11 

*259 

373 

138 



14 



53 
186 
538 

87 



36 



754 

50 

204 



223 



61 



6,535 



183 



402 
39 
21 

643 

111 
228 



78 

80 

245 

*259 

1,035 

342 

75 



467 

206 

1,361 

283 

575 

1,240 

68 

289 



290 
384 



9,021 



743 
38 
23 

601 

127 

402 

1,420 

2,790 

2,163 

655 

634 
335 
472 
*386 
1,264 
779 

862 
817 



661 

560 

2; 682 

937 

2,946 

2,598 
108 
973 

1,253 
307 

554 
1,379 

352 
905 



30,626 



1,157 
256 
925 
157 
742 
197 
446 

1,845 

4,823 

3,177 

2,683 

1,501 

1,017 

450 

786 

*671 

1,480 

1,638 

1,092 

990 

2,000 

705 

593 

736 

1,125 

3,928 

1,178 

t65 

3,538 

159 

4,656 

136 

1,139 

1,492 
711 
257 
614 

1,486 

387 

1,525 

459 



52,922 



1,843 

859 
2,195 
1,570 

923 

275 

518 
2,459 

206 
7,851 
4,373 
5,400 
3,400 
1,530 

652 
1,005 
*1,040 
1,915 
3,938 
3,151 
1,127 
3,965 

106 
1,953 

739 
1,015 
1,684 
5,957 
1,486 
1 1,225 
5,792 

508 
6,191 

210 
1,427 

1,843 

3,244 
842 
914 

1,893 
289 
691 

3,155 
512 
349 

1289 
758 



93,237 



3,147 
2,112 
4,147 
4,154 
1,007 
322 
2,389 
4,105 

941 
9,843 
5,891 
8,347 
8,806 
2,694 
1,657 
1,312 
1,138 
2,093 
6,788 
5,466 
2,292 
5,897 
2,181 
5,274 

924 
1,133 
2,034 
7,462 
2,904 
1,940 
7,719 
1,268 
8,307 

205 
2,095 
2,485 
2,709 
7,911 
1,090 

913 
3,142 
1,698 
1,305 
5,468 

941 

1,061 

30 

1,046 

1,284 

167 



159,271 



4,219 
3,341 
5,744 
4,587 
1,023 

346 
3,272 
5,639 
1,261 
10,997 
6,469 
9,180 
8,719 
3,059 
2,824 
1,915 
1,376 
2,118 
8,193 
6,942 
2,919 
6,867 
3,010 
5,684 

909 
1,239 
2,237 
8,121 
3,808 
2,731 
8,774 
1,723 
10,277 

211 
2,794 
2,849 
3,124 
9,873 
1,447 
1,012 
3,729 
2,890 
2,198 
6,496 
1,228 
1,411 
31 
1,322 
1,752 

827 



192.940 



4,776 
4,183 
6,477 
5,027 
1,018 
335 
3,590 
6,442 
1,465 
11,830 
6,915 
9,871 
8,841 
3,286 
4,011 
2,028 
1,434 
2,119 
8,789 
7,992 
3,672 
8,039 
3,309 
5,833 
1,180 
1,267 
2,224 
8,336 
4,210 
3,233 
9,259 
1,813 
11,043 
212 
3,160 
3,067 
3,561 
11,983 
1,774 
1,058 
3,950 
3,367 
2,929 
7,211 
1,247 
1,665 
32 
2,638 
2,534 
2.625 



217,017 



United States, 1906 222,340 

*Includes District of Columbia, 
tincludes South Dakota. 
J Includes Oklahoma. 



47 



IV 



PRESENT CAPITALIZATION 





Amount. 


Per MUe 
of Line. 


Grcs capital (including duplications) 1908 


$14,570,421,478 
11,671,940,649 


$67,936 
54 421 


Net capital (excludin°' duplications) 1906 


Net capital per mile of track 


37,746 







Nearly all discussions of railway problems have been con- 
fused and the value of their conclusions vitiated by fixing popu- 
lar attention on the gross figures of capitalization, income and 
profits. To what extent this is calculated to mislead the un- 
wary and deceive the uninformed, may be judged by the fore- 
going table. 

From the date of his first annual report on the ''Statistics 
of Railwa3^s of the United States" (March i, 1889) down to his 
latest report (August 20, 1506), Henry C. Adams, Statistician 
of the Interstate Commerce Commission, has shown the live- 
liest interest in this question of railway capitalization. Refer- 
ence has already been made to his early views on the imperative 
necessity for an estimate of the cost and value of the railways, 
to be made "by competent authority, free from outside influ- 
ences and clothed with ample power for the investigation." Co- 
incident with this expression of his views in regard to cost, in 
his first report he discussed the amount and character of capital 
invested in the railway industry, applying the term "railway 
capital" to all forms of property "that draws its revenues from 
railway operations." This he found to consist of stock, all forms 
of funded debt for the security of which railway plant or rail- 
way income is mortgaged, and the floating capital necessary to 
keep fixed investments in a profitable state of activity. 

Following out his idea that this capital should include the 
property that drew its "revenues from railway operations," Mr. 
Adams' first tables included under the term capital all "stocks, 
bonds, car trust obligations, receivers' certificates and current 



48 

Iial)ilities." In his explanation of his course in including cur- 
rent liabilities in his classification, he said: "Stocks and bonds 
make up fixed investments. They represent fixed capital. But 
fixed capital cannot be a source of profit except through the 
constant application of circulating capital." This circulating 
capital, he concluded, was fairly represented in ''current lia- 
bilities," which were included in the official capitalization tables 
until 1896, when, at the request of the Association of American 
Railway Accounting Officers, they were excluded from the cap- 
ital account. 

As early as 1867 "Poor's Manual of the Railroads of the United 
States" had attempted to give the capitalization of American 
railways, then estimated to be $1,172,881,000 or about $40,000 
per mile. That this was little more than a conscientious guess 
was quickly demonstrated, when, in the fifth issue of that valu- 
able work, for the first time anything like a comprehensive 
summary of the affairs of American railways was made acces- 
sible to the public. Even this was not as exhaustive as the 
publishers of the Manual hoped to make it, for in the sixth 
series they apologized for the "meagre and incomplete" reports 
from some of the companies, and only vouched "for the cor- 
rectness of our (its) own statements as far as they go." 



In the following table of "Gross Capitalization" compiled 
from Poor's Manual down to 1888 and the official Statistics of 
Railways since then, "floating debt" is included prior to 1875 
and excluded thereafter. The figures of mileage prior to those 
for June 30, 1890, include road operated under trackage rights, 
which were excluded by Mr. Adams in the summaries after 
that year. This accounts for the increase in capital per mile 
shown in the official figures between 1889 and 1890. This table 
is presented for comparative purposes only, and not as properly 
representing the true situation at any period. Its defects, how- 
ever, except as to the variations noted, are common to all years. 
The returns from the Manual are by calendar years, those from 
the official Statistics by fiscal years : 



49 



GROSS CAPITALIZATION. 

(Including Stock, Bonds, Income Bonds, Equipment, Trust and Miscellaneous Obligations.) 



Year. 



1871.... 
1872.... 
1873.... 
1874.... 
1875.... 
1876. . . . 
1877.... 

1878 

1879.... 

1880 

1881.... 
1882.... 
1883.... 
1884.... 
1885.... 
1886. . . . 
1887.... 
1888 (a). 
1888 (b). 

1889 

1890.... 

1891 

1892 

1893 

1894 

1895 

1896 

1897 

1898.... 
1899.... 
1900.... 
1901.... 
1902.... 
1903.... 
1904.... 
1905.... 
1906. . . , 



Increase per mile in 35 years 

Increase per mile in 16 years (official). 



Miles of 
Line. 



44,614 

57,523 

66,237 

69,273 

71,759 

73,508 

74,112 

78,960 

79,009 

82,146 

92,971 

104,938 

110,381 

115,671 

123,280 

125,144 

136,986 

145,333 

136,883 

153,385 

156,404 

161,275 

162,275 

169,779 

175,690 

177,746 

181,982 

183,284 

184,648 

187,534 

192,556 

195,561 

200,154 

205,313 

212,243 

216,973 

222,340 



Total 
Capital. 



$2,664,627,645 

3,159,423,057 

3,784,543,034 

4,221,763,594 

4,415,631,630 

4,468,591,935 

4,568,597,248 

4,590,048,793 

4,715,136,465 

5,239,548,318 

6,055,798,785 

6,692,998,547 

7,155,205,297 

7,373,967,813 

7,518,864,803 

7,810,125,828 

8,302,586,330 

8,977,758,747 

7,733,684,420 

8,574,046,742 

8,984,234,616 

9,290,915,439 

9,686,146,813 

9,894,625,239 

10,190,658,678 

10,346,754,229 

10,566,865,771 

10,635,008,074 

10,818,554,031 

11,033,954,898 

11,491,034,960 

11,688,147,091 

12,134,182,964 

12,599,990,258 

13,213,124,679 

13,805,258,121 

14,570,421,478 



Capital 
per Mile 
of Line. 



$59,726 
55,116 
57,134 
60,425 
61,533 
60,790 
61,644 
58,131 
59,677 
63,783 
65,136 
63,780 
64,768 
63,749 
60,990 
62,409 
60,609 
61,704 
56,498 
55,892 
58,659 
59,006 
61,130 
59,729 
59,419 
59,650 
59,610 
59,620 
60,343 
60,556 
61,490 
61,531 
62,301 
63,186 
64,265 
65,926 
67,936 



8,210 
9,277 



(a) Calendar year, Poor's Manual. 

(b) Year ending June 30, Interstate Commerce Commission. 

It is obvious that if the mileage of track rights deducted 
from the miles of line to ascertain the capital per mile in the 
Interstate Commerce Commission reports could have been de- 
ducted in the returns from Poor's Manual, the capital per mile 
would have appeared greater than is shown above for the years 
dowji to 1 888. 



50 

The apparent excess of capital per mile in the returns from 
Poor's Manual is probably due to an even greater duplication 
of capital than the later official reports contained. 

The apparent decrease in mileage in the official report for 
1888 was probably due to the incompleteness of the first reports 
to the Commission, as the increase in the succeeding year is not 
warranted by the new construction. 



Although valuable as showing the comparative trend of rail- 
way capitalization, owing to two errors — ^one of omission and 
the other of inclusion — this table fails to afford a truthful state- 
ment of the capital situation of the railways at any time during 
the 36 years it covers. Neither in 1871 nor in 1906 does it show 
all the trackage on account of which railway capital has been 
expended, while during the whole period the capital is unduly 
swelled by including capital invested in securities of other rail- 
ways. 

Manifestly the growth and cost of American railways since 
1871 is inadequately expressed in the increase of single track 
mileage, omitting all reference to the simultaneous increase in 
miles of auxiliary track and sidings, to say nothing of the ac- 
companying reconstruction of every physical feature of original 
lines. Reserving comment on this last illusive item of cost rep- 
resented in capitalization, to be discussed in another connection, 
the capital cost per "mile of track," as distinguished from mile 
of line, may be studied to advantage. 

Returns for "all other tracks" are first given in Poor's Manual 
for 1872, where they amount to 11,188 miles, or one mile of 
"other track" to 5.1 miles of line. By 1880 the mileage of "other 
track" had increased to 21,977 ^^^^ bore the proportion of one 
to 3.7 miles of line. , 

When the official statistician first took cognizance of "other 
track" in 1889, he found that it consisted of 8,084 miles of sec- 
ond track, 722 miles of third track, 531 miles of fourth track, 
and 31,715 miles of yard track, sidings and spurs, making 41,052 
miles of other track; or a proportion of one to 3.7 miles of line 
— the same proportion as in "1880, — a rather remarkable, albeit 
reassuring, coincidence. 



51 

By 1895 the total of ''other track" officially reported had 
risen to 55,528 miles, or a proportion of one to 3.2 miles of line; 
and in 1906 it had increased to 94,743 miles, or a proportion of 
one to 2.3 miles of line. 

In brief, the miles of auxiliary track during the period for 
which we have information has increased twice as fast as miles 
of single track, although the latter in the meantime has almost 
quadrupled. 

In the matter of second track alone, 8 per cent, of the line 
mileage of the United States is double tracked now against 
only 5 per cent, in 1889 — the actual second track mileage hav- 
ing more than doubled. 

The significance of these facts is that any increase there may 
have been in railway capital per mile during the last thirty years 
is wholly accounted for by the relatively greater increase in 
"other track" mileage, which has enabled the railways to meet 
the advancing tide of traffic. 



NET CAPITALIZATION. 

Thus far we have dealt with gross capitalization and what 
it has represented. It is now in order to squeeze the duplica- 
tion out of that gross total. Unfortunately, prior to 1889 the 
summaries of statistics fail to disclose to what extent railway 
capitalization was duplicated by intercorporate investments. 
That it was extensive is proved by the fact that in 1870 the 
Pennsylvania Railroad owned stocks and bonds of other cor- 
porations to the amount of $23,668,220 — a sum equal to more 
than a third of its capital stock and funded obligations. It was 
not until well along in the nineties that the New York Central 
became heavily interested in the securities of other companies, 
of which m 1906 it held $154,411,052. 

Since 1889 the Interstate Commerce Commission reports have 
contained tables showing the amount of such securities owned 
by all the railways. In that year these amounted to $1,151,972,- 
901, or 13.5 per cent, of the entire outstanding capital. In 
1895, this had risen to $1,447,181,534, or 15 per cent, of such 



52 



capital, and in 1906 to $2,898,480,829, or slightly less than 20 per 
cent, of such outstanding stocks and bonds, or 19 per cent, of 
the total capitalization of $14,570,421,478 — including income 
bonds, equipment trust obligations and miscellaneous obliga- 
tions. 

How this capital account actually stands may be seen at a 
glance in the following table : 



Capital Account in 1906. 



Gross Capital Stock — 

Common 

Preferred 

Funded Debt- 
Bonds 

Miscellaneous obligations 

Income bonds 

Equipment trust obligations 

Total Gross Capital 

From which deduct — 

Stock owned by railway corporations $2,257,175,799 

Bonds owned by railway corporations 641,305,030 

Total stock and bonds owned 

Net capitalization 

Divided by Mileage — 

222,340 miles of line less 7,865 trackage rights equals 214,475 miles. 
Net Capital per Mile 



$5,403,001,962 
1,400,758,131 

6,266,770,962 
973,647,924 
301,523,400 
224,719.099 



$14,570,421,478 



2,898.480,829 



$11,671,940,649 
$54,421 



"Current Liabilities" are excluded from this computation as 
in 1905, when they amounted to $953,319,866, they were more 
than offset by $1,014,288,239 "cash and current assets," $149,- 
371,001 "materials and supplies," and $128,588,790 "sinking 
funds and sundries." (Vide Interstate Commerce Commission's 
"Statistics of Railways" 1905, page 99.) 

Applying this formula to the data since the figures as to track- 
age rights and securities owned have been available — to wit, 
1890 — we arrive at the following correct statement of net cap- 
italization of American railways per mile of line: 



53 



Net Capitalization Per Mile of Line, 1890-1905. 



Year. 


Miles of Line 

Less Trackage 

Rights. 


Net 
Capitalization. 


Capital 
per^ile. 


1890 


153,160 
157.457 
158,452 
165,659 
171,505 
173,460 
177,264 
178,381 
179,285 
182,212 
186,876 
189,955 
194,767 
199,411 


$7,577,327,615 

8,007,989,723 

8,294,689,760 

8,331,603,006 

8,646,600,008 

8,899,572,695 

9,065,518,857 

9,168,071,898 

9,297,167,776 

9,432,041,731 

9,547,984,611 

9,482,649,182 

9,925,664,171 

10,281,598,305 

10,711,794,078 

11,167,105,992 

11,671,940,649 


$49,473 


1891 


50,858 


1892 


52,348 


1893 


50,293 


1894 


50 358 


1895 


51 421 


1896 


51 141 


1897 


51 396 


1898 


51 856 


1899 

1900 

1901 

1902 

1903 


51,215 
51,092 
49,925 
50,961 
51,559 


1904 


205,604 
209,405 
214,475 


52,099 


1905 


53,328 


1906 


54,421 








$4,948 







Comparing this increase of $4,948 per mile of net capital with 
the increase of gross capital for the same period, it will be per- 
ceived that by applying the simple touchstone of truth, sup- 
plied by the official figures, no less than $4,329 per mile of the 
fictitious water^ we hear so much about in railway capitaliza- 
tion, is not and never has been there. 

Conclusive as these figures for 1906 are of the present low 
and reasonable capitalization of American railways, and while 
they may be compared instructively with similar figures as to 
capital cost of railways in other countries, they are susceptible 
of further rectification before they are finally available for com- 
parison with our past capital per mile. 



Attention has already been called to the relatively greater 
increase of second, third, fourth and other track and sidings (of 
which there was less than 12,000 miles in 1872 and nearly 95,000 
miles in I9C?6) over single track mileage. It is now proposed 
to show the comparative course of railway capitalization in the 
United States since 1889 as applied to miles of track operated — 
this term including single track, second, third, fourth, yard track 
and sidings — it being submitted that all these are properly in- 



54 



eluded in the capital investment, and it being a matter of com- 
mon knowledge that much of the auxiliary track represents a 
higher investment per mile than some original single track mile- 
age. • 



Comparative Summary of Net Capitalization Per Mile of 
Track Operated, Including Single Track, Second Track, 
Third Track, Fourth Track and Yard Track and Sidings, 
1-1906. 



Year. 


MUes of All 

Tracks 
Operated. 


Net 
Capitalization. 


Capital per 
Mile of 
Track. 


1889 


191,001 
208,612 
216,149 
222,351 
230,137 
233,533 
233,275 
239,140 
242,013 
245,333 
250,142 
258,784 
265,352 
274,195 
283,821 
297,073 
306,796 
317,083 


$7,422,073,841 

7,577,327,615 

8,007,989,723 

8,294,689,760 

8,331,603,006 

8,646,600,008 

8,899,572,695 

9,065,518,857 

9,168,071,898 

9,297,167,776 

9,432,041,731 

9,557,984,611 

9,482,649,182 

9,925,664,171 

10,281,598,305 

10,711,794,078 

11,167,105,992 

11,671,940,649 


$38 911 


1890 


36 322 


1891 


37,048 


1892 


37,304 


1893 


35,768 


1894 


37,025 


1895 . . . 


38,150 
37,908 
37 882 


1896 .. 


1897 


1898 


37 896 


1899 


37 307 


1900 


36,934 
35,735 
36 195 


1901 

1902 


1903 


36 225 


1904 


36 057 


1905 


36 399 


1906 


36,810 








$ 478 


1890-1906. 









In this table the increase of $4,948 in net capitalization per 
mile of line shown for the fifteen years 1890 to 1906 dwindles to 
only $478 per mile during the same years, when the increase in 
auxiliary track is taken into account. Will anyone conversant 
with the practical operation of railways dissent from the in- 
clusion of auxiliar}^ tracks in the cost of railways at any stage 
of their development? If he does, let him calculate what the 
railways of the United States in 1906 would have been had their 
auxiliary tracks been increased only pro rata, as tliey did be- 
tween 1880 and 1889. We have already seen that there was one 
mile of auxiliary track to every 3.7 miles of line in 1889. Ap- 
plying this ratio to the single track mileage of 1906 would have 
provided only 58,641 miles of auxiliary track against a reported 



55 



mileage of 94,743. The difference, 36,102 miles, involved new 
construction just as surely as in the building of original lines. 
At an average of $10,000 per mile this would require a capital 
expenditure of $361,020,000. This is a very conservative esti- 
mate because most of this auxiliary construction has been in 
the territory with the densest traffic and where cost of yard 
space near terminals was highest. 

An estimate of $361,020,000 disposes of more than one-third 
the capitalization represented in the increase of $4,948 per mile 
between 1890 and 1906 in the table of net capitalization. 

The remainder is far more than represented in the increase 
in the relative number, capacity and cost of equipment per mile 
during the same period. This increase in number is shown in 
the following statement: 





1889 


1SC6 


Increase 




Number 


No. per 
100 Miles 
Operated 


Number 


No. per 
100 Miles 
Operated 


per 100 

Miles 


Locomotives 


29,036 
25,665 

885,688 


18.6 

16.4 

577.3 


51,672 

42,262 

1,916,650 


23.2 

19.0 

861.8 


4.6 




2.6 


Freight cars 


284.5 







The increases per 100 miles of line operated shown in the 
last column of the above table when applied to the mileage of 
1906 produce the following statement of the increase in the 
capital cost of equipment over what it would have been had 
the ratio to line remained the same as in 1889: 

Excess Over the Ratio of 





■ Number 


Cost 
each 


Capital 
Cost 




10,225 

5,779 

632,443 


$12,000 

6.000 

900 


$122,700,000 




34,674,000 


Frei^'ht cars 


569,189,700 




Total 


$726,563,700 









This sum^ added to the estimate of the cost of the excess of 
auxiliary track over the proportionate increase during the period 
under consideration makes a total of $1,087,583,700 or $5,072 
per mile of line, to place against the increase of $4,948 per mile 
in net capitalization shown above. 



56 



While these estimates are not scientifically accurate, they 
are so obviously reasonable as to afford convincing proof that 
in recent years there has been an actual and remarkable shrink- 
age in the capitalization of American railways when compared 
with the vast sums that have been invested in their extension, 
renewal, improvement and re-equipment. Furthermore, it should 
be borne in mind that these estimates, as to the cost of excess 
of auxiliary track and equipment, have not taken into account 
the capital outlay for introducing the block signal system on 
over 50,000 miles, the equipping of virtually the entire service 
with automatic couplers and train brakes — not 10% of the cars 
being so equipped prior to 1889 — the reduction of grades, 
straightening of alignment and relaying of thousands of miles 




Track Elevation in Chicago by the C hicago and Western Indiana R. R. 
Looking South From 49th Street. 



of old line with heavier rails, more ties per rail and better bal- 
last. 

Nor has the elimination of crossings of highways and railways 
at grade been a matter of insignificant expense to the railways. 
In Massachusetts, where the commonwealth and the local au- 
thorities bear 35% of the cost, the Railroad Commissioners re- 
port that this work since 1890 has cost the railways $16,299,664. 



57 



Nearly three times this sum has ah'eady been spent by the rail- 
ways of Illinois, without state or local aid, on track elevation in 
Chicago alone ; and similar work laid out will call for a total 




Track Elevation in Chicago by the Chicago and Western Indiana R. R. 
Looking North From 49th Street. 



expenditure of $75,000,000, an amount equal to the Census valu- 
ation of all the railways of South Carolina in 1904 and more 
than the construction cost of all the railways of the kingdom 
of Norway. 

It has been estimated that it would cost nearly half a billion 
dollars to do away with the 8,733 gi"ade crossings in New York 
State alone ! 

Whether the railways of the United States are worth their 
net capitalization as of June 30, 1906 — $11,671,940,649 or $54,- 
421 per mile of line or $37,746 per mile of track — is an inquiry 
that we may now approach from several different points of view. 



58 



FIRST COST OF CONSTRUCTION 



From the earliest records, and despite the financial shifts to 
which the original builders of American railways were forced 
to raise capital, the fact stands out through all the statistics 
that their capital and cost of construction were never far apart. 
In their early history capital invested and cost of construction 
were often treated as synonymous, although in 1870 it was said 
that the stocks and bonds issued by all the companies had not 
probably produced more than seventy-five cents on the dollar. 
It was recognized then, though often forgotten since, that th^ 
account was about evenly balanced by the net earnings, which 
in the language of Poor's Manual ('70-71) "have been put into 
construction without any increase of nominal capital. The cost 
of old lines, of course, constantly increases, but the average for 
the whole country is kept down by the new lines which are being 
opened.'' 

In a table of comparative statistics for the year 1875, accom- 
panying the ninth series of Poor's Manual, the total investment 
per road mile of American railways is given as $62,725, while 
the "cost of works per road mile" is placed at $58,874. In 1880 
the total investment including floating debt was $5,108,241,906 
and the "cost of railroad and equipment" was placed at $4,653,- 
609,297. The Manual for 1886 thus states the liabilities of the 
companies owning 127,729 miles of line in 1885 : 



LIABILITIES. 

Capital stock $3,817,697,832 

Funded debt 3,765,727,066 

Unfunded debt 259,108,281 

Current debt 231,040,215 

Total liabilities $8,073,573,394 



ASSETS. 

Cost R. R. and p]quipment . . .$7,037,627,350 
Real estate, stocks, bonds and 

other investments 946,353,859 

Cash, bills receivable, current 

accounts, etc 303,853,405 

Total assets $8,287,834,614 

Excess Assets over Liabili- 
ties 214,261,220 



59 



This statement contains the unmistakable indication of what 
was susceptible of bookkeeping proof, as soon as the official 
statistician segregated the items, that the cost of Construction 
and Equipment of American railways exceeded their net cap- 
italization, as is shown in the following statement of these items 
since 1890: 

Comparative Statement of Net Capitalization and Cost of 
Construction and Equipment, 1890 to 1905. 



^-EAR 


Net Capitalization 


Per Mile 


Cost of Construc- 
tion and 
Equipment 


Per Mile 


1890 


$ 7,577,327,615 

153,160 miles 
8,007,989,723 

157,457 miles 
8,294,689,760 

158,452 miles 
8,331,603,006 

165,659 miles 
8,646,600,008 

171,505 mUes 
8,899,572,695 

173,460 mUes 
9,065,518,857 

177,264 miles 
9,168,071,898 

178,381 mUes 
9,297,167,776 

139,285 miles 
9,432,041,731 

182,212 mUes 
9,547,984,611 

186,870 mUes 
9,482,649,182 

189,955 miles 
9,925,664,171 

194,411 mi es 
10,281,598,305 

199*411 mUes 
10,711,794,078 

205,604 miles 
11,167,105,992 

209,405 mUes 
11,671,949,649 

214,475 miles 


$ 49,473 
50,858 
52,348 
50,293 
50,416 
51,306 
51,029 
51,396 
51,856 
51,764 
51,092 
49.920 
51,055 
51,545 
52,099 
53,328 
54,421 


$ 7,755,387,381 
(not given) 
8,738,533,165 
(not Riven) 
* 8,564,394,830 
143,518 miles 
8,937,545,760 
161,258 miles 
9,073,470,532 
164,008 miles 
9,203,49-1,619 
167,741 mUes 
9,500,327,733 
173.860 miles 
9,709,329,228 
174,673 miles 
9,750,581,424 
170,000 miles 
9,961,840,805 
177,638 miles 
10,263,313,400 

181,437 miles 
10,405,095,085 

182,734 miles 
10,658,213,376 

187,442 miles 
10,973,494,903 

19?,823 miles 
11,511,537,131 

198,841 miles 

11,951,348,949 

203,228 miles 




1891 




1892 


$ 59,674 
55,423 


1893 


1894 


55,317 


1895 


54,867 
'54,643 
55,585 
57,336 


1896 


1897 


1898 


1899 


56 079 


1900 


56 511 


1901 


56,941 
56,861 


1902 


1903 


56,616 
57,893 


1904 


1905 


58,807 


1906 







♦This decrease is explained by transfer of $541,000,000 included in "Cost of Road" in 
1891 to "Miscellaneous" item in General balance Sheet for 1892. This is all the information 
vouchsafed by the Statistician. 

Here we have what Mr. Adams calls the "bookkeeping state- 
ment" of the cost of constructing American railways, which on 
its face shows that during the whole period mentioned the cost 
of a part has exceeded the net capitalization of the whole. The 



60 

figures in small type, giving the mileage for each year respec- 
tively, show that this discrepancy in mileage represented ran 
as high as 14,93.^ miles in 1892 and 3,404 miles at its low mark 
in 1896. 



In regard to the annual balance sheets of the railways, from 
which Mr. Adams compiled these figures of cost of construction, 
it should be said that he was never satisfied that they accurately 
represented actual expenditures. Different roads used a diversity 
of methods in accounting. In 1891 he asked, *'Is the balance 
sheet the true interpretation of the standing of a railway com- 
pany that expends large sums of money on its roadbed, and 
charges such expenditures to operating expenses?" Of his own 
general balance sheet that year, however, he said, **It is doubt- 
less more nearly accurate than any similar statement ever pub- 
lished." And yet, as the note to the above table states, it con- 
tained a small item of $541,000,000 in cost of construction which 
was transferred to "Miscellaneous" account in the following 
year. 

These annual balance sheets bear internal evidence to the 
fact that they consistently understated the cost of the railway 
property. For instance, in 1895 the item for ''cost of equip- 
ment" is given at $571,570,946, to which it had risen gradually 
during the preceding years. By 1898 this item had declined to 
$526,347,372, although during the meantime there had been an 
actual increase of 535 locomotives, 483 passenger cars, and 55,- 
613 freight cars which at prevailing prices could not have cost 
less than $50,000,000. A decrease in cost of equipment as given 
in the balance sheet in the face of such facts can only be ex- 
plained by assuming that during the period of receiverships and 
reorganizations that prevailed from 1894 to 1898, account ceased 
to be taken, not only of current expenditures for additional 
equipment, but of the irrevocable expe;nditures previously 
made. 

The word ''Receiver" does not appear in the exhaustive in- 
dex to the report of the Statistician for the year ending June 
30, 1893. The report for the year following notes, "That never 
in the history of transportation in the United States has such a 



61 



large percentage of railway mileage been under the control of 
receiverships as on June 30, 1894." The receivership record for 
that and the next five years, which had such an apparent bear- 
ing on the shrinkage of the cost of equipment, was as follows: 



Railways in Receiver's Hands, 1894- 1899. 



YEAR 


Number of 
Companies 


Miles 
Operated 


Capitalization 
Involved. 


1894 


192 
169 
151 
128 
94 
71 


40,818 
37,855 
30,475 
18,861 
12,744 
9,853 


$2 500 000 000 


1895 


2 439 144 503 


1896 . 


1 892 331 464 


1897 


1 131 278 748 


1898 


661 575 318 


1899 


585,878,251 





Formidable as is the array of wrecks from the depression of 
1894, it does net tell the whole distressing story. During tlie 
period covered in the above table no less than 308 roads operat- 
ing 55,620 miles of line and having an aggregate capitalization 
of over $3,133,000,000 went into receivers' hands. This means 
that during six years, less than a decade ago, nearly one-third 
of the mileage and more than one-third of the capitalized invest- 
ment of American railways had to seek the shelter of the courts 
to escape the eftects of the financial and industrial storm that 
swept over the country. 

In 1900, when the railways may be said to have emerged from 
the protectorship of the courts, the report of the Statistician 
credits them with $588,361,029 for "cost of equipment," or only 
$16,790,083 more than in 1895, although in the meantime there 
had been an increase of 1,967 locomotives, 1,601 passenger cars, 
and iy^,6'/6 freight cars, representing an outlay of at least $135,- 
000,000, irrespective of the increased cost of more expensive 
replacements. 

From which it is evident that receiverships have had the 
effect not on-v of squeezing the water out of railway capitaliza- 
tion but of excluding^ expenditures for additional equipment from 
the "bookkeeping cost" jf the railways. 



62 



INCOMPLETE RECORDS OF COST. 

There are as many reasons why it is impracticable to get at 
the actual cost of the railways of the United States as there 
are railway companies — and the last official report gives a list 
of 2,167 o^ them — ^to say nothing of those which have become 
extinct since Carrol of Carrolton turned the first sod for the 
B. and O. In the beginning they were independent corpora- 
tions subj\ict to few regulations as common carriers and none 
as to their methods of accounting. The cost of the Quincy tram- 
way is a mere guess of "about $34,000." The capital subscribed 
for building the 61 miles of the Camden and Amboy Railroad 
in 1830 was $4,000,000, or over $65,000 per mile. But this in- 
cluded the digging a canal. The so-called "Mauch Chunk Rail- 
road," a mere 3 ft. 6 in. wooden tramway built in 1827, from 
Mauch Chunk, 9 miles to the coal mines, cost $3,500 per mile. 
We know to a cent what the first imported Stephenson loco- 
motive cost, for it had to be declared at the Custom House. We 
are told that it cost one' hundred dollars to transport a ton of 
freight from Buffalo to Albany before the construction of the 
Erie Canal, and know approximately that it cost $97,000 per mile 
to build and improve the great waterway that was to remove 
the land barrier between the East and West. But we have no 
authoritative knowledge on which to base a comprehensive 
guess as to what was the original cost of the instrumentality 
which, after a generation of competition, was to put the Erie 
Canal out of business. 

Buried in the archives of a thousand and one companies might 
be found the records of the cost of their original lines had 
anyone the time, patience and interest necessary for the task. 
But no scrutiny however conscientious and searching could 
possibly separate the myriad items of expenditures for improve- 
ments and betterments from the current expenses for mainte- 
nance of way, structures and equipment during three-quarters 
of a century of railway expansion. 

There was no system about and no supervision above either 
the beginnings or the bookkeeping of railways in America. They 
sprang into existence in response to the demand for communica- 



63 

tion between settlements on the tidewaters and water routes 
of the country. Canals served well enough to carry heavy or 
bulky goods, but were tedious for passengers and in the North 
closed to traffic in winter. The railways came sporadically wher- 
ever the conditions promised profit, they were financed with 
difficulty and frequent disappointments, except during periods 
of speculative mania, and were often not built by the parties 
who projected them and paid the initial cost of surveys and loca- 
tion. This kind of costly experience has lasted all through the 
history of railways at all stages of their initiation, construction, 
development and survival. The records of their cost have been 
lost or rendered valueless in the numerous financial crises and 
combinations and reorganizations that have marked and scarred 
their history. 

Originally capitalized at $5,000,000, by 1843, when 188 miles 
had been built, the Baltimore and Ohio had cost $7,623,600, or 
over $40,000 per mile. 

The Charleston and Hamburg road of South Carolina, char- 
tered in 1829, for which the first American locomotives placed 
in actual service were built, is said to have cost only $1,750,000 
for 135 miles completed in 1834, but before 1840 it was sold to 
the Louisville, Cincinnati and Charleston Railroad Company for 
$2,400,000, or nearly $18,000 per mile. It was an unusually 
straight and level road, through a gently undulating country, 
and was cheaply constructed even for those times. 

The original cost of the New England roads was much 
higher; that of the Boston and Lowell, commenced in 1831 and 
completed in 1835, being $1,505,645 up to November 30, 1836, 
or $56,600 per mile; that of the Boston and Worcester, com- 
menced in 1831, $1,700,000, or $38,700 per mile — $250,000 being 
expended for real estate, right of way, depot buildings and ma- 
chinery; that of the Great Western Railroad (now Boston and 
Albany west of Worcester) was estimated at $4,191,171, or 
$36,104 per mile; that of the Boston and Providence, $1,782,000, 
or $43,460 per mile. 

New York, because of its faith in canals and waterways, did 
not enter on railway building with so much enthusiasm as its 
sister states to the north and south. In the eight miles of the 



64 

Harlem Railroad, however, from near the City Hall "passing 
along Center and Broome Streets and the Bowery to Fourth 
Avenue, and thence to Harlem Strait," it could boast the most 
expensive piece of railway property in America prior to 1839. 
"The whole cost of the work, including depots, motive and 
other power, etc., amounted to $1,100,000, or $137,500 per mile." 

The New York and Hudson River Railroad had not then 
been projected, but the construction of the New York and Al- 
bany Railroad from "Harlem Strait" to Greenbush, opposite 
Albany, was under way and was estimated to cost $2,377,946, 
or nearly $17,000 per mile, "exclusive of land damages, ware- 
houses, locomotives, etc., etc." 

"The Erie," commencing on the Hudson River "at Tappan, 
25 miles above New York," had been constructed as far as 
Middletown in Orange county and was already in the throes 
of financial difficulties. This "stupendous work," as it was 
called, when completed was to be relinquished "to the state 
at cost, with interest at 14 per cent, per annum" — which throws 
a flood of light on the value of money for railroad construction 
previous to 1839. 

The Mohawk and Hudson Railroad, upon which the De Witt 
Clinton made its trial trip in 1831, connecting Albany with the 
Erie canal at Schenectady, cost $600,000, or $38,000 per mile. 

Original Cost of the Pennsylvania. 

The Columbia and Philadelphia Railroad, destined to be the 
main stem of the great Pennsylvania system, was undertaken 
by the Keystone state to form a part of the great thorough- 
fare to Pittsburg and the western states. A description of the 
journey in early days has been given in the preceding pages. 
Its construction was authorized by the legislature in 1828 and 
in October, 1834, it was completed as a double track road the 
entire way from Philadelphia to Columbia on the Susquehanna 
river, where the travelers betook themselves to boats. When 
in 1834 the road was opened for public use, the historian says, 
"The depots, workshops and other necessary structures, were 
subsequently completed." The cost of the road without these 
incidentals in 1834 was as follows : 



65 



Cost of the Columbia and Philadelphia Railway in 1834- 

81.60 Miles: 



Grading 

Culverts 

Viaducts or railway briilges 

Roads and farm bridges 

Fencing 

Raihvaj' supei-structure, 

Building and Machinery 

Engineering and superintendence 

Damages 

Repairs 

Incidentals 

Alteration to accommodate the city of Lancaster. 



Total $3,754,577 . 20 



649,158.69 
74,113.94 

327,695.80 

42,055.00 

65,410.86 

,181,156.25 

111,787.12 

133,934.31 
54,833.29 
42,451.76 
11,980.18 
60,000.00 



To which there was subsequently added the following items: 



Locomotive engines 

Additional buildings, turnouts 

Retained percentage on former contracts 

New ropes at inclined planes 

Embankment at Maul's bridge 

Renewal of wooden track 

Rebuilding Valley Creek bridge destroyed by fire. 
New road to avoid Columbia inclined plane 



Grand Total. 



Per mile. 



327,203.41 

37,511.16 

5,134.08 

11,584.34 

1,796.34 

18,907.48 

17,218.13 

118,123.53 



$4,296,796.92 
53,047.00 




First Locomotive Used on Pennsylvania Railroad. 



In the details of these accounts it appears that locomotives 
cost $6,720 each, and the cars, which were the property of pri- 
vate individuals, $2,000 for passenger and $275 for freight cars. 
Although the state furnished the steam motive power, provision 
was made for horse power by laying a ''horse path" of broken 



66 

stone from 6 to 9 inches deep. The owners of the cars paid 
toll to the state and collected 4 cents a mile from passengers 
and 9-14/100 cents per mile for a ton of goods. 

Two items in the above statement are especially instructive 
— that for alterations to accommodate Lancaster and that for 
the new road to avoid Columbia inclined plane. It is impossible 
to estimate the cost of changes made in American railway routes 
to accommodate various communities, or of new construction to 
remedy original misconstruction in levels and alignments, as 
the field broadened. 

Cost of the Alleghany Portage Road. 

What was known as the Alleghany Portage Railroad formed 
the link between the Pennsylvania canal system at Hollidays- 
burg on the east and the resumption of water transportation 
at Johnstown on the west, attaining an elevation of 2491 feet 
above the Atlantic Ocean. The viaduct over the Conemaugh 
at the Horseshoe bend, described as a "magnificent structure," 
cost $54,562. The general statement of the cost of this im- 
portant pioneer work was as follows: 



Grading 

Masonry 

First track of Railway 

Sscond track of Railway 

Building machinery, etc., at planes (first set) 

Ten stationary engines (second ret) 

Buildings, etc., for second set of engines 

Depots, machine shops, water stations, weighing machines and various works 



Total 

Per mile. 36.96 miles. 



$472,ie2.69i 

116,402. 64i 

430,716. 59i 

362,987.50^ 

151,923. 30i 

37,779.75 

21,048.59 

41,336. 66i 



$1,634,357,691 
44,545.00 



The fractions of a cent in this statement illustrate the exact- 
ness with which the state kept its books in those days, but 
neglects to throw any light on the cost of the four locomotives 
used on the "long level" of the road. Nor does the statement 
cover office expenses, engineering and extra allowances made 
to contractors by the legislature. This work was completed in 
1834. 

The initial cost of the Philadelphia and Reading Railroad, in- 
cluding the extension to Pottsville, 95 miles, was $5,000,000, 
or $52,630 per mile. 



67 



Cost in the Forties. 

In 1840, when there were 2,818 miles of railway in the United 
States, an estimate based on earnings and on current publica- 
tions would indicate that the capital cost, ten years after the 
opening of the Baltimore and Ohio road, of all the railways in 
the country was less than $66,000,000 or about $23,000 a mile. 
This estimate, judged by figures given above, is probably far 
below the mark. Money for such risky business was worth 
at least 10 per cent, at that time. More than half of 




Freight Engine, 1844. 

the mileage of 1840 was in the Middle States, about one- 
fifth of it in the New England States and not one hun- 
dred miles of it was west of the Alleghanies. It was of the 
most primitive and temporary construction, laid with the strap 
rail already described and built piecemeal to connect established 
communities at the least possible cost. Already the railways 
had been crippled and their extension retarded by the financial 
panic of 1837. One of the effects of this business recession was 
the financial embarrassment of the founder of the Baldwin Loco- 
motive Works, who was forced to a settlement with his cred- 
itors before continuing his great industry, which has been so 
intimately associated with the fortunes of American railways 
since their infancy. 



68 



On December 6, 1845, ^ committee of citizens of Vicksburg 
appointed to solicit charters from the legislatures of Alabama 
and Mississippi for the Charleston and Western Railroad (Ala- 
bama and Vicksburg now) made the following statement in their 
report : 

"Twenty years ago, a short road at Quincy, to carry marble, 
was all the pioneer we had. Now, we have nearly 4,000 miles 
of railroad in actual daily operation in the United States, and 
a great deal more in the rest of the world. The materials of 
experience are therefore sufficiently abundant. The cost of 
79 railroads in the United States is given in the table published 
in the American Railroad Journal. The aggregate length of 
them is 3,723 miles, and the cost is $109,841,460; or $29,325.85 
per mile. j 

"In the Carolinas and Georgia 785^ miles cost but $14,063,175, 
or $17,919 per mile ; those of North Carolina and Georgia 583^ 
miles long, cost $8,391,723; or $14,387.72 per mile; those of 
Georgia 337J miles, cost $5,231,723,. or $15,489 per mile; the 
Central Railroad in Georgia, 190J miles, cost $2,551,723; or 
$13,570.72 per mile; and that part of the Georgia Railroad of 
65 miles, v/hich has been constructed of late years, is said to 
have cost less than $12,000 per mile, including an edge rail ; 
or, as commonly called, a T-rail. 

"The residue of the railroads on the list, in the "northern and 




Baldwin Fast Passenger Engine 



eastern states, amounting to 2,937^ miles in length, cost $95,- 
788,295; or $32,633.23 per mile. 

"The reason of this difference of cost, in favor of the southern 



69 

states, Is mainly In the abundance and cheapness of timber, the 
absence of rock excavations, and the low cost of right of way." 
The company applying for these charters was to fix and pub- 
lish its tolls no'c subject to change "oftener than once a year," 
with a restriction that the annual profit should not exceed "25 
per cent." In those days legislators were only too glad to 
promise the railways the earth if Investors could thereby be 
tempted to furnish capital to provide much needed transporta- 
tion. 

Cost in the Fifties. 

By 1850 the mileage of American railways had risen to 9,021 
miles and their earnings were in the neighborhood of $4,000 
a mile. An estimate places their cost at this period at $272,- 
000,000, or over $30,000 per mile. The increase In cost per 
mile between 1840 and 1850 was largely due to the reconstruc- 
tion of entire lines to carry the unexpected burden of freight 
which was beginning to leave the canals and waterways for 
the more expeditious and accessible railways. During this 
decade eastern roads began replacing their strap rails with T- 
ralls, — selling their strap rails to western roads for whatever 
they could get, up as high as $50 a ton — about 30 tons being the 
average weight to the mile. At this date there were only 131 
miles of rails west of Indiana, of which Illinois boasted iii and 
Wisconsin 20. It was not until five years later that the great 
commonwealth of Iowa appeared in a table of railway states. 
Chicago had not then been reached by rail from the East, the 
original Michigan Central terminating at New Buffalo, whence 
Its business was transported by steamers across Lake Michi- 
gan. Between 1848 and 1850 the railway mileage west of the 
Alleghanies was almost doubled and then ensued that rush of 
construction which only suffered temporary abatement during 
the trying days of the Civil War. 

I deem myself fortunate, for the purpose of this record, that 
there has come Into my possession a collection of engineers' 
reports, covering the period between 1846 and 1854, giving valu- 
able data of estimates and cost of railway construction when the 
pioneer work was being pushed with great energy Into virgin 



70 



territory. For the benefit of the stockholders of a projected 
Canadian road one of these reports contains the following statis- 
tics of the principal railroads of the two well settled states of 
New York and Massachusetts in 185 1 : 

New York and Massachusetts Railways in 185 i. 



ITEM. 



New York. Massachusetts. 



Length of main lines, miles 

Length of double track, miles 

Length of branches, miles 

Aggregate length as single line 

Total cost 

Average cost per mUe, single line 

Average speed passenger trains, miles per hour, . . 

Average speed freight trains, miles per hour 

Average charge per mile, per passenger, first class 

Total miles run by trains 

Total passengers carried in cars 

Total passengers carried one mile 

Total tons of freight carried in cars 

Total tons of freight carried one mUe 

Average number of passengers per train 

Average number of tons freight per train 

Total earnings 

Earnings per mile per annum 

Earnings per mile run 

Total expenses 

Expenses per mile run 

Ratio expenses to income 

Net profit 

Profit on cost 



1,703 


1,005 


346 


267 


56 


110 


1,992 


1,293 


$91,423,040 


$65,855,315 


45,895 


60,930 


32 


24 


17 


13 


3 cents 


3 cents 


4,738,784 


4,726,017 


8,045,708 


9,569.470 


247,878,040 


157,202,690 


1.274.649 


2,499,953 


75,867,747 


76,244.739 


66i 


65 


m 


60 


$10,192,445 


$8,786,440 


6,795 


9,030 


2.10 


1.78 


4,626,535 


4,751,830 


90 cents 


96 cents 


45.4% 


53% 


$5,565,910 


$4,034,610 


6.1% 


6.1% 



If the cost per mile had been calculated in the usual way, 
viz., per mile of line, the cost in New York would have amounted 
to $52,000 per mile and in Massachusetts to $59,000. 

Although the rate per ton mile is not given, it is clear that 
it must have been approximately 3.67 cents, or not far from 
5 times the present rate. Three-quarters of the earnings was 
from passenger traffic. In 1906 over 70 per cent, of the gross 
earnings of American railways was from freight. 

The ratio of expenses to income of 45.4 per cent, in New 
York, or even 53 in Massachusetts, half a century ago may well 
fill the minds of present day operating officials with envy. But 
they could do better if rates and fares had not been so merci- 
lessly slashed through the periods of fierce competition that have 
intervened since 1851. 



71 



Details for several New England roads, whose names are still 
familiar to American ears, throwing further light upon the sub- 
ject we are considering, appear in another tabular statement, 
from which the following is extracted: 





Average 


Ratio of 


MUeage 


cost per 


expense to 




mile 


earnings 


25.77 


$88,000 


65 


74.26 


61,565 


48 


41.00 


67,000 


47 


44.63 


88,570 


55 


50.93 


66,620 


60 


37.25 


63,710 


75 


155.40 


80,065 


44 



Per Cent 
of profit 
on cost 



Boston and Lowell 

Boston and Maine 

Boston and Providence 

Boston and Worcester 

Fitchburg 

Old Colony 

Western (later Boston and Albany) 



7i 

8 

7i 

6i 

5i 

34 

74 



In 185 1 the Western Railroad was found by a committee of 
stockholders to be in need of heavy expenditures to make good 
depreciation in structures and equipment all the way from 
Worcester to Albany. Over $81,000 was needed to renew the 
wooden bridges that had not then been replaced with iron or 
steel structures. Rails bought in this country had ''already 
manifested great inferiority of quality," and provision had to 
be made for their replacement at $45 per ton, 100 tons to the 
mile. Stati(m buildings were out of repair. "The original stock 
of Engines furnished for the road was, for the most part, both 
as to power and efficiency inadequate to its business;" so new 
ones were purchased raising the expenditures for locomotives 
to $672,739, with only 59 of all descriptions in service. This 
made each engine represent a cost of over $11,000. About one- 
fifth of the cars in the passenger service had only four wheels. 
A similar proportion of "merchandise cars" were in the same 
primitive fix. For 906 of these the amount of $532,025 had 
been expended, which is nearly $600 per car, and the committee 
recommended an "extraordinary expenditure" of $48,704 to re- 
place worn out "with entire new cars." About the only thing 
that had not suffered depreciation was the value of the land 
belonging to the corporation. This the committee found "cer- 
tainly had not." Even after writing off $216,531 for deprecia- 
tion, the committee found that the stocks and bonds amounting 



72 



to $10,469,520, only exceeded its assets, not counting the appre- 
ciation of its real estate, by $88,409. 



The estimates of the chief engineer of the Cleveland and 
Pittsburgh Railroad for the 99.84 miles from Cleveland to 
Wellsville on the Ohio river afford an instructive illustration 
of the cost of building a railway in what was then the "far 
west." For one mile of superstructure "with H or inverted T- 
rail weighing 65 pounds to the yard," the estimate was as fol- 
lows : 

Cost of the Cleveland and Pittsburgh. 



Ballast or gravelling for foundation 

10,560 lineal feet of ground sills 4 x 12 inches, 4 cents per foot 
2,112 lineal feet cross ties, each 8 feet, 6 inches long, 7x8 

inches, at 16 cents per tie 

4,224 spikes for cross ties, 1,050 lbs., at 6 cents per lb 

Labor laying timber 

103 tons of iron (H or inverted T rails, weighing 65 lbs. per 

yard), at $63 per ton 

590 chairs, each 15 lbs., 8,850 lbs. at 3i cents per lb 

1,180 bolts for fastening chairs, at 10 cents , . . 

7,258 spikes for rails, 4,542 lbs. at 6 cents per lb 

Labor laying iron, etc . . 



Total. 



Per Mile. 
700.00 
422.40 

337.92 

63.00 

260.00 

3,489.00 
309.75 
118.00 
272.52 
240.00 



$9,212.59 



The estimate for grading, masonry and bridging was $581,- 
320 and for 6 miles of "turnouts" at $12,000 per mile, $72,000. 
Only $30,000 was estimated for land damages and 8 per cent, 
was allowed for contingencies. The total estimate including 
$328,000 for equipment, stations, shops, etc., was $2,076,201 or 
$21,000 per mile. The provision for rolling stock was as fol- 
lows : 



12 Locomotives and tenders at $7,500 
24 Passenger cars at $1,500 

120 Freight cars at $500 

120 Freight cars at $333 

Total 



$90,000 
36,000 
60,000 
40,000 



$226,000 



In its charter as amended in 1845 the Cleveland and Pitts- 
burgh Railroad was authorized to demand and receive "faur 



73 

cents per mile' for passengers, and "not more than eight cents 
per mile for freight." 

When the road was finally completed in 1853, the estimated 
cost had been exceeded by nearly a million. Real estate for 
which $30,000 was estimated was already valued at $164,823. 
Nearly half the capital had been obtained through subscription 
to stock and $221,650 charges had been incurred in the sale of 
the Company bonds. The Company earned dividends from the 
start, which were paid in stock, the cash being put into con- 
struction, "instead of borrowing funds for carrying on that 
work," as the report states.'^ 

This road played a pioneer part in the building of the West 
and is now a very important link in the Pennsylvania system 
west of Pittsburgh. 



Contemporaneous wdth the building of the Cleveland and 
Pittsburgh other railway pioneers were pushing- the construc- 
tion of the Toledo, Norwalk and Cleveland Railroad, now a part 
of the Lake Shore and Michigan Southern, and in the language 
of their first annual report (1852) ''were obliged to submit to 
some sacrifices on our stocks and bonds in order to provide the 
means of payment." The original cost of this road and also of 
the Ohio section of the Cleveland and Buftalo Railroad was in 
the neighborhood of $20,000 per mile. The rails (65 lb. to the 
yard) for this road cost $36.76 per ton, wdth $6 added for freight, 
passenger engines $8,000 each, freight engines $9,500, passen- 
ger cars, 1st class, $2,200, 2nd class and postofifice cars, $1,200, 
freight cars $575 to $700. A modern postal car costs from $6,000 
upwards. 



In a report on the preliminary surveys of the Cleveland, Co- 
lumbus and Cincinnati Railroad (1846) there is an interesting 
discussion as to the merits of the T and Plate rail. The dif- 
ference in cost was no less than $4,164 per mile, for at that 
early date 56-lb. iron rails cost $80 per ton delivered in Cleve- 
land. Four wheeled freight cars cost $375 each. Light is 

*This was regarded as sound "economical policy," and the sequel has proved that 
it was. 



74 

thrown on the general cost of railways in those days by the 
statement "of the engineer in chief that the road from Cleveland 
to Columbus, owing to the small expense for grading, timber, 
right of way, etc., "may be made at from one-third to one- 
half the expense of such roads now existing in the United 
States." As his estimate for the Cleveland to Columbus road 
was over $15,000 per mile, he placed the cost of other roads 
from $30,000 to $45,000 a mile, or considerably below the New 
York and Massachusetts average. The report of this engineer, 
C. Williams, lays stress on the ''creative power" of a railway, 
its ''ability to produce business, that before did not exist, and 
would not, but for the means of getting promptly and cheaply 
to market." 

The charter of this company, as amended in 1845, grants to 
it "power to demand and receive for the transportation of per- 
sons and property over said railroad or any part thereof, such 
rates as the directors o£ said oompany may deem reasonable." 



The prospectuses and preliminary reports of the engineers of 
this period almost ignore Chicago and the Northwest as an 
objective. The Pennsylvania system was already making its 
way by "links in the Great Central Route to St. Louis." The 
engineer's report on the third link, the Bellefontaine and In- 
diana Railroad, was not wholly oblivious to the northwestern 
possibilities when he wrote, "I cannot close this branch of my 
report without referring to your communication with the great 
northwest. The railroad now under consideration from Indian- 
apolis to LaFayette is on a direct line towards Chicago, and 
it is intended to open a continuous line by that route. At Chi- 
cago it will meet the railroad from Galena." 

How roads were financed in those days is suggested in a 
single paragraph in the first "exhibit" of the Columbia, Piqua 
and Indiana Railroad (now a division of the Pittsburgh, Cin- 
cinnati, Chicago and St. Louis Railway), which says: 

"The Company have secured the right of way for nearly the 
entire road (102 miles) which is estimated to be worth $75,000. 



75 

Its entire cost will not exceed $30,000, one-half of which will 
be liquidated by the stock of the company at par. The prop- 
erty and grounds for depots, station houses and machine shops, 
belonging to the Company, have been acquired by donation 
or subscription to the capital stock of the Company, and are 
valued at $50,000." 

The idea that only roads in the east represented an invest- 
ment by stockholders is refuted by every one of these reports 
which contain statements similar in effect to the following from 
the exhibit just cited: 

Ways and Means. 



Subscriptions to capital stock by counties and townships. . , 

Subscriptions in cash by individuals , 

Subscriptions in lands , 



Add issue of first mortgage. 
Total 



$238,000 
629,500 
100.000 



$ 967,500 
600,000 



$1,567,500 



The bonds bore interest at 7 per cent, and the first $140,000 
were disposed of at par. 

•Right of way "in most cases was conferred voluntarily, the 
citizens through whose property the road passes acting in the 
spirit of men who appreciate the advantages to accrue to them- 
selves, as well as the public, from the construction of the road." 
And well they might, for every railroad built in those days im- 
mediately doubled, and often quadrupled, the value of the land 
through which it passed. 



Beginning in 1850, railway building was assisted and stimu- 
lated by land grants in portions of the country least able to 
provide profitable traffic. Figures relating to these are very 
incomplete, but in 1897 it was estimated that patents had been 
issued for 87,915,326 acres. The government lost nothing by 
these grants, as the price of the alternate sections it retained was 
increased from $1.25 to $2.50 per acre. Lands so obtained were 
disposed of by the railways to settlers as rapidly as possible 
and at reasonable prices. Professor John Bell Sanborn, in Bui- 



76 

letin No. 30 of the University of Wisconsin (1899), says that 
these ''lands have not been the source of wealth to the roads 
that it is commonly supposed. Even in the case of the largest 
grants the balance for the whole period is quite small and in 
many cases the land departments are now a source of expense 
rather than of revenue." The average price obtained has been 
under $10 an acre. ''Comparing the building of the roads which 
received land grants," says Professor Sanborn, "with those that 
did not, it seems that there was no particular need for most of 
the grants. Unaided roads were built along similar routes even 
faster than aided ones. The great transcontinental roads, how- 
ever, probably needed the assistance of aid in the shape of land 
or bonds to secure their construction at the time they were 
built." 

Whatever the value of these land grants, it went to swell the 
total irrevocably invested in American railways. In compar- 
atively few instances, as mentioned in the succeeding paragraph, 
were stocks or bonds issued to represent the millions invested 
in railways through these grants and public and private dona- 
tion of right of way, etc. 



The first annual "exhibit" of the engineer of the Cincinnati, 
Union and Ft. Wayne Company (now a part of the Grand 
Rapids and Indiana) sheds instructive light on the taking of land 
for stock, in these terms : 

"The company has taken lands in subscription for stock 
under the provisions of the law authorizing the same. They 
were not taken, however, at fancy prices, but at their cash 
valuation, ascertained by an appraisement under oath, by an 
appraiser appointed by the company, who did not include per- 
ishable improvements in the valuation, nor did he take into con- 
sideration the prospective increase of value of the lands, on 
account of the construction of the railroad." 

The lands taken in this case were mortgaged to secure the 
bonds upon which funds were obtained to complete the road. 



Among the interesting and valuable reports of these early 
days is the first (January 18, 1853) to the stockholders of the 



77 



Racine, Janesville and ^lississippi Railroad Company (now a 
part of the Chicago, Milwaukee and St. Paul). "The total esti- 
mated cost of the work, fully equipped and furnished in all 
departments, is $20,000 per mile amounting, for 67 miles of 
road, to $1,340,000." A year later the engineer presented the 
following detailed estimate of cost : 

Original estimate of cost of 66 miles of Chicago, Milwaukee 
and St. Paul in 1854: 

Road. 



Grading, masonry and bridging 

6,233 55-100 gross tons rail on track, $78. 

Chairs and spikes, per mile S600 

Ties 



Laying track and dressing at §400 . 

Ballasting and raising track 

3^2 miles turnouts 



66.08 miles at §16,296.40 per mile, including turnouts. 



342,036.00 
486,216.90 
39,648.00 
58,113.75 
26,432.00 
86,710.00 
37,710.00 



$1,076,866.65 



Equipment. 



8 Locomotives 

8 passenger cars 

4 baggage cars 

70 freight cars 

Platform and gravel cars. 



Depot buildings, engine houses, etc 

Engineering, superintendence and agencies. 
Right of way and fencing $1,000 per mile.. 



.08 miles at $20,938.96 per mile. 



$72,000 

16,800 

6,400 

45,500 

25,000 



$ 165,700.00 
40,000.00 
35,000.00 
66,080.00 



$1,383,646.65 



The capital for this expenditure consisted of: 



Capital stock 

First mortgage bonds. 



$ 670,000 
670,000 

$1,340,000 



Funds for the preliminary work were derived from subscrip- 
tions to capital stock, and the account of disbursements to 
January 17, 1854, were as follows: 



78 
Disbursements. 



For construction, including grading, bridging, grubbing and 
materials furnished 

For depot grounds at Racine and Beloit and other real estate 

For right of way and fencing 

For engineering, including preliminary surveys 

For expense, including interest and discount, exchange, sur- 
veyors' instruments, oflBce furniture, taxes, expenses in 
procuring right of way, and general expenses under 
Commissioners and Board of Directors 

For salaries including attorneys and bookkeepers 

Total 



$ 75.227.25 

37,887.45 

25,489.14 

8,941.70 



8,285.58 
1,183.22 

$157,014.34 



These reports illustrate better than any formal history can, 
not only the cost of the early railways in the United States, but 
the sources from which the funds for their construction were 
derived and the economy with which such funds were expended. 
Their cost continued to justify Mr. Tanner's comment in 1840 
that "The economy with which most of them have been exe- 
cuted, when compared with the cost of similar works abroad, 
is matter of surprise to all." The reports during the Fifties 
all exhibit the same spirit set forth in the first report of the 
engineer of the North-Western Railroad Company (the link 
of the Pennsylvania system from Blairsville to Newcastle on 
the line to Cleveland) as follows: 

"The object contemplated by the construction of the road 
is two-fold — 1st, to develop the mineral wealth of the region 
traversed, and furnish an outlet for the surplus productions 
of a portion of the state entirely destitute of railroad facilities; 
and 2d, to open a direct communication between Philadelphia 
and the Lakes; either of which will fully justify the compara- 
tively small expenditure required." 

In this particular instance, the expenditure required was 
estimated for "grading and bridging $1,375,000, averaging $16,- 
272 per mile" for the 84J miles and "about an equal amount for 
the superstructure, equipment, depot, water stations, etc., nec- 
essary to put the road in running order." 

It has cost many times as much more to place this road 
through that "rugged and difficult country" in a condition to 
move the inodern millions of freight at modern rates. 



79 

Some idea of the railway situation before the war can be 
had by recalling the fact that the Baldwin Locomotive Works, 
which in 1006 built 2,6(^6 engines, some weighing as much as 
175 tons, produced only 47 in 1855; 59 in 1856; 66 in 1857; 33 
in 1858; 70 in 1859 ^^^ 83 in i860, and that they varied from 
15 to 28 tons in weight. It is difficult to say which is the more 
instructive contrast, that between the number, or the weight 
and conseq!ient power of these engines. The decrease in pro- 
duction in 1858 reflects the effect of the business depression in 
the preceding year. 

Cost Since i860. 

In i860 the railway mileage of the United States had risen 
to 30,635, more than one-third of which was west of Pittsburgh. 
So rapid had been the construction into unprofitable territory 
that the earnings had increased less than $1,000 per mile over 
the figures for 1850. A conservative estimate places the cost 
of constructing this mileage at over $1,000,000,000 or about 
$33,000 per mile. The banking panic of 1857 had little effect 
to retard railway expansion beyond increasing the cost of float- 
ing loans. By this time the work of relaying the original roads 
with T-rails was completed, although in 1865 Charles A. Dana, 
who had been appointed to investigate and report what should 
be done with the railways that had been seized and used by 
the government and on which it had spent millions of dollars, 
in his report to Secretary Stanton said : ''Our expenditures upon 
some of these have been very heavy. For instance, we have 
added to the value of the road from Nashville to Chattanooga 
at least a million and a half dollars. When that road was re- 
captured from the public enemy it was in a very bad state of 
repair. Its embankments were in many places washed away, 
its iron was what is known as the U-rail, and was laid in the 
defective old-fashioned manner, upon longitudinal sleepers, with- 
out cross-ties." The government replaced the antique construc- 
tion with T-rails for its own use but with little intention of 
making the replacement a permanent improvement. 

Incredible as it may seem to our generation, when Abraham 
Lincoln was elected for his first term there was not a mile of 



80 

railway in the great states of Minnesota, Kansas and Nebraska 
and only 23 miles on the whole Pacific coast. In the broad 
territory between, the Indians and buffaloes still roamed; and 
most of it had not even been organized into territories, much 




Baldwin Engine Built in 1861. 

less into the present sovereign states. I wonder if the reader 
realizes what this means? In his ''Conquest of Arid America," 
William E. Smythe says, "The ninety-seventh meridian divides 
the United States almost exactly into halves." A glance at the 
map shows that this meridian cut the Red River of the North, 
the western boundary of Minnesota, at Grand Forks, and thence 
passes through the Dakotas, Nebraska, Kansas, Oklahoma and 
Texas. In i860, less than half a century ago, this vast half of 
the United States was without railways except for 23 miles in 
the environs of San Francisco. To it should be added Minne- 
sota and the portions of the other states named east of the 97th 
meridian, except Texas, which at that time had some 300 miles, 
all in the eastern section of the state. Today, including Texas 
and excluding Minnesota, there are over 61,000 miles of railway 
in this territory, or double the mileage in the whole United States 
in i860; and there is need of as much more if it is to secure 
anything like the benefits of transportation now enjoyed by that 
half of the republic east of the 97th meridian. 



By 1870, when we reach the period of more trustworthy data, 
the railway mileage of the United States was 52,898 miles, con- 



1 



striicted at an approximated cost of $44,000 per mile. This ad- 
vance in cost is partly represented in the millions spent in re- 
habilitatinof the railways of the Southern States, which had been 
either destroyed or allowed to go to seed during the civil war, 




Bkidge, Locomotive, Train and Woodcut Landscape. 1869. 

when the mileage in some of these states was at a standstill. 
Virginia went into the war with 1,379 ^^^^ came out of it with 
1,401 miles; Georgia had 1,420 miles at the beginning and close 
of the war; Florida, 402 and 416, respectively; Mississippi, 862 
and 898; Louisiana, 335 at the opening and close; Kentucky, 
549 and 567, respectively; Tennessee, 1,253 ^"^^ 1^296, and 
Arkansas did not show a mile of new construction from the 
opening of the war until 1868. From 1861 to 1865 only 349 
miles of railway were constructed in the twelve states in the 
Southern group, and much of this being for military purposes 
vras of the most flimsy character, to be subsequently abandoned 
or w^holly rebuilt to meet the transportation demands of peace. 
Moreover, it was during this period that the Union and Cen- 
tral Pacific Railroads were undertaken and completed at a total 
cost of over $254,000,000 or $112,000 per mile, with no extrava- 
gant expenses for terminals or right of way. The net capitaliza- 
tion of the 2,955 niiles owned by the Union Pacific today is less 
than $85,000 per mile. The building of these two connecting 
roads, to which the government contributed its credit by issuing 
over $53,000,000 in 6 per cent, currency bonds, and generous 
land grants, was then regarded as a patriotic necessity, and its 
completion in 1869 was celebrated as a proper subject for 
national rejoicing. In 1869 public sentiment had not been slu- 



82 

diously perverted into an attitude of mistrust and hostility 
toward the one agency that had done more than any other to 
build up and preserve the Union. The cost of these two roads 
alone was equivalent to adding $5,000 per mile to the average 
cost of the entire mileage of the United States. 





A Gold Medal American Engine— Paris, 1867. 

Justice in the public mind has never been done — probably 
never will be — to the courage, enterprise and indomitable energy 
of the Americans who pushed this great work through financial 
shoals and physical obstructions to completion. It and the Cen- 
tral Pacific, as well, were built at war prices. Labor was scarce 
and was to be had only at exorbitant figures. The cost of ma- 
terials was well nigh prohibitive. The price of ties laid down at 
Omaha ran as high as $2.50. The rails for the first 440 miles of 
the Union Pacific cost $135 per ton. When railway connection 
was established between Council Bluffs and the East this was 
reduced to $97.50. Government bonds were issued as the work 
progressed, and netted the Company only 65 cents on the dollar. 
The country through which it was built was the hunting ground 
of the most warlike Indians of the West. They harrassed the 
work at every stage, from scalping surveying parties to attacks 
on graders, who worked with <heir guns stacked within easy 
reach. It is related that more than half the construction gangs 
were men who had been through the war, which experience 
stood them in good stead. 

The conception of this work was an inspiration of patriot- 
ism ; its financiering was a nightmare ; its physical construction 
was a battle between civilization and the forces of savagery 



83 

and Nature, worthy the pen of Fenimore Cooper; its progress 
was a titanic race for subsidies and its completion was hailed 
with patriotic acclaim throughout the Union. President Lin- 
coln designated the eastern terminus of this transcontinental 
railway on March 7, 1864, and on May 10, 1869, President Grant 
received the tidings that the last spike — a golden one from Cali- 
fornia — had been driven that joined the rails of the Union and 
Central Pacific Railways at Promontory, Utah. That event was 
celebrated in a poem by Bret Harte beginning: 

What was it the engines said. 

Pilots touching head to head; 

Facing on the single track 

Half a world behind each back. 
And what was this great work whose completion marked the 
meeting of the iron girdle across a continent, with half a world 
behind each pilot? It was a hastily graded, unballasted, indif- 
erently equipped, single track road of 1921 miles, laid with 56- 
Ib. iron rails, through sparsely settled deserts and mountains, 
which, paradoxical as it may seem, cost three times as much as 
it was worth and yet was worth more than three times as much 
as it cost. 

The Union Pacific of 1907 has more miles of yard track and 
sidings than the Union Pacific of 1870 had miles of main line. 



It was between i860 and 1870 that the steel rail first made 
its appearance and began to supplant iron on roads whose traf- 
fic justified the cost of its substitution. That this was almost 
prohibitive for weak roads may be judged from the fact that in 
1870 the price of steel rails was still $106 per ton. The first 
steel rails used in the United States cost $210 per ton, and the 
Pennsylvania Railroad paid $206 per ton for the first Bessem.'^r 
steel rails which it laid in 1865. 



By 1880 the mileage of operated railways in the United States 
had increased to 82,146 and the cost per mile had risen to over 
$56,000. No one at all conversant with the history of American 
railways during the preceding decade will be at a loss to ac- 
count for this development. It covered a period of extraordi- 



84 

nary expansion, disaster and recovery. Between 1870 and 1873 
nearly 18,000 miles of road had been built, more than 10,000 
miles of which was in the sparsely settled western states where 
construction was expensive, population was needed and traffic 
was light. The Northern Pacific Railroad, for which ground 
was broken in 1870, boasted that it was going into a territory 
that "w^ould make ten States as large as Pennsylvania, wholly 
unsupplied with railroads." In the language of Poor's Manual, 
speaking of one western road, ''Nearly the whole increase of 
mileage has proved unproductive." This was true of all other 
western railroads. It was simply a case of excess of mileage 
to population. The country was railroad mad, and then, as 
ever, speculative promoters took advantage of the fever to 
project lines into territory which could not be expected to sup- 
port them for another decade. Then came the granger legisla- 
tion in the same western states, which frightened capital and 
effectually put an end to railway expansion, until, with its modi- 
fication or repeal by 1878, there came restored confidence and 
renewed activity in building into the wilderness, soon to be 
peopled with millions brought thither by the railways which 
looked to the future to recompense them for what were origi- 




'• Monster of 1876" (3 ft. 6 in. Gauge) and a Modern Locomotive, 

nally unprofitable optimistic ventures. How the financial and 
industrial panic of 1873 affected the railways is shown in the- 
receiverships during the following years, a summary of which 



85 

is given elsewhere (page 154). Its effect upon the cost of 
the railways is reflected in the advance from a cost of $44,000 
per mile in 1870 to $56,000. While the panic and liquidation 
wiped out millions of dollars of investments, it simply created 
the necessity of raising other millions to restore many roads 
which wxre permitted to run down and to bring others up to 
the higher standard required by our increasing population and 
expanding trade. Roadbed, bridges, rails, equipment and ter- 
minal facilities had to undergo a complete transformation to 
meet the demands of a freight traffic that more than doubled 
in ten years. 

Between 1870 and 1880 the mileage of secondary track and 
sidings had more than doubled, and, while steel rails were so 
exceptional in 1870 as to escape the attention of the statistician, 
by 1880 there were 33,679 miles of line laid with steel. The sub- 
stitution of steel rails for iron during this decade alone at prices 
ranging from $106 per ton in 1870 to $57 in 1880, cannot have 
cost the railways of the United States during the period In 
question less than $250,000,000, or over $3,000 per mile. 



Betw^een 1880 and 1889 no less than 15,570 miles of track were 
converted from a gauge of 5 feet or over to the standard Ameri- 
can 4 feet SI inch gauge. Before 1886 there had been an infinite 
confusion of gauges varying from 2 feet up to 6 feet, with over 
3,000 miles with two separate gauges. 



In 1890 we arrive at the period of official figures of cost of 
construction given in the first table in this chapter. Unfor- 
tunately, it w^as not until 1892 that the official statistician in- 
cluded in his report a statement of the miles of line repre- 
sented in this cost. Assuming that 140,000 miles were repre- 
sented it would appear that the cost of construction up to that 
date was $55,000 as against $56,000 in 1880. This decrease in 
the average was due to the construction in ten years of over 
40,000 miles of comparatively inexpensive lines in the terri- 
tory west of the east line of Illinois and the Mississippi River. 
The magnificent territory of the Northwest and Southwest only 
needed the railv.ays to make them accessible for the thousands 



86 



of settlers who waited on transportation to convert it into the 
great agricultural and industrial states it has since become. How 
some of these states have profited by the empire building rail- 
road construction of the twenty years before 1890 is shown in 
the following statement: 





Miles of 

Railroad 

1870. 


Miles of 

Railroad 

1890. 


Increase. 




2,683 

1,092 

1,501 

711 

65 

157 


8,347 
6,466 
8,806 
7,911 
1,940 
2,485 
4,154 


5,664 
4,374 


Minnesota 




7,305 
7,200 


Texas 


North Dakota 


4,360 


South Dakota 




Colorado 


3,997 






Total . ; 


5,209 


39.109 


32.900 







Railways at any cost were indispensable to the very states 
which were among the first to disregard the scripture injunc- 
tion, "Thou shalt not muzzle the ox when he treadeth out the 
corn." It is worth remembering that the population of these 
states increased from 2,970,749 in 1870 to 7,799,505 in 1890. It 
is difficult to imagine any of these states dependent on water- 
ways and post roads. 



During the following decade to 1900 the reported cost of 
construction rose to $10,263,313,400 for 181,437 miles repre- 
sented, or over $56,500 per mile. This shows an increase per 
mile over both 1880 and 1890, and is easily accounted for by 
the continued transformation and improvement that was going 
on throughout the railway world. Where over 74,000 miles of 
new road had been built between 1880 and 1890, less than 
37,000 were added to the total mileage in the succeeding de- 
cade. In the meantime, however, the auxiliary tracks and sid- 
ings had increased from 33,711 to 52,153 miles; the tracks laid 
with steel rails increased from 167,458 miles to 238,464 and cov- 
ered 92.4 per cent of the total trackage of the country; the 
adoption of automatic couplers and train brakes scarcely begun 
in 1890 had become well nigh universal ; various forms of block 
signal systems were being installed and the whole railway trans- 



87 



portation system had been put on a plane of efficiency beyond 
the anticipations of 1890. The proof of this increased efficiency 
is found in the following statement of the public service ren- 
dered in 1890 and 1900: 



Passengers carried 

Passengers carried one mile 

Passengers carried one mile, per mile of line. . . 

Tons of freight carried 

Tons of freight carried one mile 

Tons of freight carried one mile per mile of line 



1900. 



576.865,230 


492,430,865 


16,039,007,217 


11,847,785,617 


83,295 


75,751 


1,101,680,238 


636,541,617 


141,599,157,270 


76,207,047,298 


735,366 


487,246 



1890. 



Here is an increase of over 35 per cent, in passenger service 
and nearly S6 per cent, in freight service during a decade when 
the population of the republic showed a growth of less than 
21 per cent. The marvel of this achievement is that it was 
effected in the face of one of the worst periods of reaction ex- 
perienced in the industrial progress of the United States, to 
which reference has already been made. Even in 1900 $3,176,- 
609,698 of railway stocks outstanding, or 54.34 per cent, of the 
gross capital stock paid no dividends. 

The country recovered from the effects of the slump of 1893 
more rapidly than the railways, which were forced to extraordi- 
nary expenditures to make good the depreciation in road and 
equipment suffered during the receiverships and enforced econo- 
mies of 1893-1897. And during this period of recovery the rail- 
ways were called on to make provision for transporting traffic 
which increased at a pace unparalleled in the previous history of 
the country, although it has been surpassed since. 

The analysis of the cost of construction at the date of the 
latest official statistics requires a separate chapter. 



88 



VI 
PRESENT COST OF ROAD AND EQUIPMENT 

In his balance sheet for the year ending June 30, 1905, the 
official statistician gives the following statement of the cost 
of road and equipment for ''203,228 miles of line." 





Amount 
1905. 


Increase 
over 1904. 




$11,170,458,581 
780,890,368 


$ 389,288,643 
46,889,612 






Total 


$11,951,348,949 

$58,809 


$436,178,255 


Per mile of line 







Unfortunately for my purpose this balance sheet bears on 
its face evidence of its own incompleteness. Its statement 
of liabilities places the capital stock at $6,680,473,280 and the 
funded debt at $7,568,555,810, aggregating $14,249,029,090 for 
"203,228 miles of line represented." As the total railway cap- 
ital for 209,405 miles of line in another summary of the same 
report is given at $13,805,258,121,, the total in the balance sheet 
is manifestly incorrect. This error is all the more bewildering 
because the statistician in connection with the lesser total says: 

"The aggregate railway capital at the close of the year was 
$13,805,258,121, which is equal to a par capitalization of $65,926 
per mile of line. This assignment makes no deduction of stocks 
and bonds owned by railways in their corporate capacity, and 
to the extent that such deductions are proper, overstates the 
capital per mile of line." 

An examination of earlier balance sheets shows that this 
discrepancy, by which the capitalization of a part of the rail- 
ways is made to exceed the whole, has been steadily growing 
since 1898. Prior to that date the balance of capital was always 
very properly on the side of the greater mileage, even though 
the capital per mile of line was not. 

Another feature of this balance sheet, calculated to detract 



89 



from its authority, is that in the list of assets the stocks and 
bonds owned by the railways are given as follows: 

Stocks and Bonds Owned 1905 Given in Balance Sheet. 





Amount 
1905. 


Increase 
over 1904. 




$1,766,761,049 
572,609,132 


$ 43,539,611 




14,216,048 






Total 


$2,339,370,171 


$57,755,659 







Compare these figures with the following from the summary 
of ownership of railway stocks and bonds, page 56 of the same 
report : 

Stocks and Bonds Actually Owned. 



r^- T-^ ~ 


Amount owned by 
Kailway Corpora- 
tions. 
1905. 


Increase 
over 
1904. 


Stocks . 


$2,070,052,108 
568,100,021 


$127,193,749 
9,627,779 


Bonds 




Total 

Discrepancy . . 


$2,638,152,129 
298,781,958 


$136,821,528 
79,065,869 





These discrepancies cannot be explained as due to the differ- 
ence in mileage represented in the summaries and the balance 
sheet, for the excess of capital in the balance sheet is for less 
mileage, and itself proves that all the great stock and bond 
owning companies are included in the balance sheet. 

Such discrepancies would be immaterial for the purposes 
of this inquiry did they not tend to discredit the two items of 
the balance sheet in which we are interested. Here again the 
inquirer after truth is confronted with a statement of cost of 
equipment that strains credulity. The official balance sheet 
places the co^t of equipment in 1905 at $780,890,368 and the in- 
crease in such cost at $46,889,612. Turning to the section of 
the official report relating to equipment for that year, it appears 
that the railways owned 48,357 locomotives, 40,713 cars in pas- 



90 



senger service, 1,731,409 freight cars and 70,749 work cars. The 
exact expenditure on account of this equipment is not known, 




1880— Passenger Coaches— 1905. 

but if it had to be replaced today its cost might safely be esti- 
mated at the prices given in the following computation: 

Number and Cost of Equipment in 1905. 



Average Cost. 


Aggregate Cost. 




$12,000 


$580,204,000 


40,713 passenger cars at. . 

1,731,409 freight cars at 

70,749 work cars at. .... . 


6,000 


244,278,000 


1,000 


1,731,409,000 


600 


42,449,400 






Total 


$2,598,340,400 







From which it is evident that the cost of equipment as given 
in the official balance sheet is less than one-third what it should 
be. The estimated cost of the several items in this table could 
be reduced to $10,000; $5,000; $800 and $400 respectively and 
the total cost would still be $2,100,561,800, or nearly 170 per 
cent, more than the total given by the official statistician. 

Unfortunately, it is not permissible to correct the official 
balance sheet by substituting an estimate, however reasonable, 
in place of an error, however palpable, or the cost of construc- 
tion would read as follows: 



91 



Cost of road 


$11,170,458,581 




2,598,340,400 








$13,768,798,981 







or with a reduced estimated cost per item, as i 


Follows : 




$11,170,458,581 


Cost of eouiprnent 


2 100 561 800 






Xota.1 cost of construction 


$13 271 020 381 







But railway accounts have been so lacking in uniformity 
and have come through so many vicissitudes and reorganiza- 



llJillflJlimiil 



Steel Passenger Cak, 1907— Total, Weight, 105,500 Lbs. 

tions that there is absolutely no way by which we can test the 
"Cost of road" items. As given in the ^'Balance Sheet," there 
is every probability that it includes many millions of dollars ex- 
pended on cost of equipment. But on the other hand there is 
an equal probability that it excludes other millions of cumula- 
tive cost expended through seventy odd years of railway devel- 
opment out of income for additions, betterments and improve- 
ments. 

Fortunately, there is independent data by which to arrive at 
a more accurate approximation of the cost of construction of 
American railways than is afforded by the official "Balance 
Sheet." In 1906, official reports from 313 companies operating 
206,960 miles of line, or approximately 94 per cent, of the aggre- 
gate mileage in the United States, furnished the following data 
in regard to their actual cost for 166,493 miles owned to June 
30th of that year: 



92 



Line represented, 
166,493 MUes. 



Cost of road 

Cost of equipment 

Cost of both, not separated. . . . 

Total cost of construction. 



$5,966,303,567 

786,469,647 

3,286,313,826 



$10,039,087,040 



Distributing the third item in this table between cost of road 
and equipment in the same proportion as that where they were 
separately reported, it was found that the total cost of road 
would be $8,874,691,398 and of equipment $1,164,395,642. 

The 313 companies operated 40,477 miles of line under leases 
in one form or another, for which they paid $116,144,978 rental. 
Estimating that they paid as high as 10 per cent, on the cost 
of these leased lines, much of which was for essential terminal 
trackage, would make a capitalized cost of $1,161,949,780. To 
this should be added the cost of 13,066 miles of unreported line, 
for which $30,000 per mile is a low estimate. Adding to these 
the estimate of actual cost of equipment in 1906 already made 
gives the following statement of the cost of constructing and 
equipping 220,036 miles of line in 1906: 

Cost of 220,036 Miles of Line Operated. 



Cost of road (166,493 miles) owned 

Cost of road (40,477 miles) leased 

Cost of road (13,066 miles unreported, at $30,000). 
Cost of equipment 

Total cost of construction 



$8,874,691,398 

1,161,949,780 

391,980,000 

2,758.611,600 



$13,187,232,778 



It will be perceived that by following an independent route 
we arrive at approximately the same results — the higher total 
of the table derived from the official Balance Sheet being un- 
doubtedly due to the inclusion therein of cost of equipment 
under cost of road. 

Whichever figures we accept, it is evident that the book- 
keeping cost of constructing the railways of the United States 



93 

is in the neighborhood of $13,000,000,000. This is $1,328,059,351 
more than their net capitalization in 1906! 



The reason why the original cost of construction is an item 
that cannot generally be ascertained, "except for relatively new 
roads," is thus admirably stated by the Railroad Commission of 
Wisconsin in its decision in fixing the passenger fare in that 
state at 2^ cents per mile: 

"Most of the roads were built by construction companies 
whose records are not in existence, and then turned over to 
some other company at a different value than the original cost. 
Many of the roads are undergoing constant improvements; in 
fact, some of them have been almost entirely rebuilt since the 
time of their first construction. The original cost as well as 
the amount that has been expended upon the plant to any 
given date, exclusive of the maintenance, are items that for 
these and other reasons cannot be obtained, and which would 
probably be of little value if they could be had." 

There is little reason to doubt, however, that the $13,000,000,- 
000 the "bookkeeping cost of construction" fairly represents the 
amount of money that between 1830 and 1906 has been ex- 
pended in bringing the railways of America up from the 23 
miles of experiments with horses and 7-ton engines for motive 
power, to the 309,218 miles of track upon which engines weigh- 
ing as high as 175 tons drag trains carrying an average of 322 




Baldwin Mai.let Compound, 1906. Weight on Drivers, 350,000 Lbs. 

tons of freight. At every step money has been spent that has 
never appeared in the construction account, some of it on 
roads that have disappeared from the map; much of it has gone 



94 

in driblets— here an additional spike, there one more tie per 
rail; here a hundred feet of siding, there miles of double track; 
everywhere betterments and improvements charged to operat- 
ing expenses or paid for out of surplus income, amounting in 
some instances to more than the dividends and often where no 
dividends were declared. 

Cost Measured by Traffic. 

The extent and cost of the improvements during three-quarters 
of a century cannot be ascertained, but it can be measured by 
the growth in the volume of traffic. The type of the physical 
structure of the railway, the strength of its track and bridges, 
the length of its auxiliary track, the character and cost of its 
depots, freiglit houses and shops, the quality of its service — 
everything in fact that contributes to its value as a public 
servant — depends on the amount of its traffic. The cost of the 
instrument, commensurate to the traffic it has handled, has par- 
alleled the growth of that traffic. 

So late as 1851, the total tonnage of all the railways of the 
United States is stated to have been less than 5,000,000 tons, 
from which the receipts were $20,192,104, or over $4 per ton, 
irrespective of distance. 

In 1906, the total freight carried by the railways of the United 
States was 1,631,374,219 tons, for which the receipts were $1,- 
640,386,655, or $1.01 per ton, irrespective of distance. 

If the railways of 1906 had received the same rate per ton 
charged by those of 185 1 their freight receipts would have ex- 
ceeded $6,500,000,000 instead of the one-fourth of that sum they 
actually earned. 

Between 1851 and 1906 the mileage of American railways 
covered in the above data increased from 8,876 to 222,340 miles, 
that is, 25 fold. 

But their tonnage in the meantime increased from 5,000,000 
to 1,631,374,219 tons, that is to say 326 fold, or over 13 times 
faster than their mileage. 

To handle this remarkable increase in volume of traffic of 
13 times per mile, the cost of road and equipment has only risen 
from about $30,000 per mile in 1850 to about $60,000 in 1906, 
while the net capitalization has only increased to $54,421. 



95 



In other words, transportation capacity in fifty years has in- 
creased over 1,000 per cent., while the cost of the medium has 
increased lOO per cent, per mile and the capitalization of the 
medium has increased less than 75 per cent, per mile. 




Fast Mail, 1904— I'aken Instantaneously While Running 80 Miles an Hour. 
Green, Photographer. 

Accompanying this wonderful achievement and inseparably 
involved with it has been the still more amazing phenomenon 
of a decrease in the cost of railway service to the public, amount- 
ing in the case of freight rates to nearly 80 per cent, and in 
passenger rates to at least 33 per cent, and to fully 66 per cent. 
from the pre-railway days. 

That these estimated reductions in the cost of railway ser- 
vice to the public are not wide of the mark is proved by the 
reports of the Pennsylvania Railroad. Since as late as 1864 its 
average earnings per ton mile have declined from 2.498 cents to 
0.595 i" 1906, or 'j^y per cent., and its passenger receipts from 
2.672 cents to 2.014, or over 24 per cent. Had the Pennsylvania 
received the same rates in 1906 that it did in 1864 its freight 
earnings last year would have been over $460,000,000 instead 
of only $109,960,888, and its passenger earnings would have been 
nearly $40,000,000 instead of only $30,074,868. Today the cost 
of road of the Pennsylvania Railroad is $134,000 per mile of 
road owned and of equipment $17,000 per mile of line operated. 
In 1864 the cost of its road and equipment was $81,000 per mile 
of owned ioad. In 1906 the freight service of the Pennsylvania 
was over 40 times greater than in 1864 and its passenger service 



96 



was nine fold greater, while the cost to the public has been at 
the reduced rates as above stated. 

The actual cost of reconstructing, equipping and expanding 
the Pennsylvania road to meet the demands of a traffic more 
than doubling every decade, in the nature of railway service 
cannot be ascertained. But that it exceeds the book account 
of cost of construction many millions admits of no doubt. Spec- 
tacular expenditures, like that of tunneling Manhattan Island, 
perfecting its Philadelphia terminal and reducing its grades 
through the Alleghanies, halt public attention and get into the 
capital account in sums of eight figures, but of the million and 
one items of improvement going on constantly, all charged in 
the day's work, so to speak, who knows or can compute them? 
Financiers know that since 1899 the Pennsylvania has invested 
$72,941,000 in betterments and charged it to income, paid off 
$17,020,000 Car Trust obligations out of profits and invested 
$42,649,000 premiums on stock issued in improvements, but 
even they have no means of knowing how much has gone into 
the cost of the railways and been charged to operating ex- 
penses. 

During the eight years 1899 to 1906 inclusive, no less than 
$274,816,000 has been expended by the Pennsylvania Railroad 
on additions and improvements, nearly half of which was de- 
rived from profits as shown in the accompanying statement: 

Betterments and Outlays out of Profits. 



Year to Dec. 31. 



1906. . 
1905.. 
1904.. 
1903.. 
1902.. 
1901.. 
1900.., 
1899.. 



Total. 



Additions to 
Cost of Road 
and Equip- 
ment Charged 
Capital 



$33,532,000 
38,832,000 
12,199,000 
29,292,000 
24,932,000 



1,671,000 
1,748,000 



$142,206,000 



Betterments 

and Sinking 

Funds 



$11 

8 

6 

10 

13 

11 



,558,000 
739,000 
809,000 
030,000 
037,000 
337.000 
496,000 
935.000 



$72,941,000 



Car Trust 

Capital 
Payments 



$4,246,000 
3,249,000 
3,249,000 
2,685,000 
1,472,000 
1,121,000 
585,000 
413,000 



$17,020,000 



Other Sums 
used to meet 

Capital 
Expenditures 



$15,201,000 



17,362,000 



8,536,000 
1,550,000 



$42,649,000 



97 

Expenditures like these have led such high authorit}' as the 
London Statist to remark that "Not only does the capital ac- 
count of the Pennsylvania Railroad contain no 'water/ but it is 
doubtful if the road could now be built and equipped up to its 
present standard for more than double the sum at which it is 
now capitalized." 



What has been done in this way by the Pennsylvania has been 
the characteristic policy of maintaining structures and equip- 
ment on every railway in America that has pretended to keep 
pace with the expanding traffic requirements of the times. It 
has been done whether the roads could afford it or not, whether 
they paid dividends or not, under the inexorable compulsion of 
their public service. 

In its recent investigation into the finances of the Chicago, 
Milwaukee and St. Paul Railway, the Railroad Commission of 
Wisconsin found that $25,617,015 or one-tenth of "the cost of 
the plant" was "represented by surplus earnings and other in- 
come which had been devoted to new construction"; and that 
between June 30, 1899, and June 30, 1906, "about $7,826,758 
were charged to operating expenses and credited to the Renewal 
and Improvement fund." Speaking of the permanent improve- 
ments which were included in disbursements before the income 
account of this road was credited with the surplus, the Railroad 
Commissioners of Senator La Follette's own state decided that: 

"These additions to the plant are undoubtedly in the nature 
of permanent investments that could have been properly charged 
to the construction account. The sums thus spent are equities 
which belong to the stockholders, which they could have taken 
out in the form of dividends or they could very properly have 
been added to the surplus." 

In passing, it is interesting to note that while the Commis- 
sioners found that the cost of construction account of the Chi- 
cago, Milwaukee and St. Paul Railway showed $32,247 per mile 
for the entire line, their estimate of the cost of reproduction 
of the part of it in Wisconsin was $37,388 per mile. Compare 
these figures with a net capitalization of only $31,605 per mile! 

If the present value of the right of way of the Chicago, 



98 



Milwaukee and St . Paul Railway, largely obtained free of 
charge, were added to its cost of construction, as the Commis- 
sioners admitted it very properly might be, the excess of cost 
to capital of this one road would be in the neighborhood of 
$10,000 per mile. 



Assuming that there is a more or, less close relation between 
cost and capitalization in the different groups into which the 
country is divided by the InterstatQ,*Q9nimerce Commission, the 
following table of net capitalization and earnings per mile in 
the several groups shows that capitalization or cost of con- 
struction is absolutely without determining effect on the cost 
of the service to the public: 

Capitalization and Cost of Service, 1905. 



Group. 


MUes of 
Line. 


Net Capital 
per Mile. 


Average 

Passenger 

Receipts 

per Mile. 

Cents. 


Average 

Freight 

Receipts 

per Ton Mile. 

Cents. 


I New England 


7,980 
22.100 
23,915 
12,169 
23,869 
46,836 
11,337 
29,384 
14,393 
17,422 


$53,279 
102,931 
67,543 
45,770 
36,879 
43,350 
42,069 
50,557 
39,099 
49,280 


1.762 
1.722 
1.957 
2.363 
2.298 
1.987 
2 . 108 
2 . 108 
2.283 
2.124 


1.179 


II. North Atlantic 

Ill Ohio etc 


.665 
.607 


IV. South Atlantic 

V. Central and Gulf 

VI Nol-th Central 


.691 
.839 
.766 


Vn. Northwestern 

Vin. Southwestern 

IX. Texas 


.900 

.988 

1.096 


X. Pacific... 


1.098 


United States 


(a) 209,405 


, $53,328 


1.962 


.766 







(a) Net after deducting line operated under trackage rights. 

This table will afford a perplexing study to those theorists 
who persist in claiming that capitalization exercises a controlling 
influence on rates. The effect of density and volume of traffic 
and length of haul is reflected in every figure of this significant 
table. It also indicates that outside of Groups I and II there is 
not enough density of passenger traffic to justify a 2 cent maxi- 
mum fare. 4 

Unfortunately, the official statistics do not furnish data for 
a like distribution of cost of construction among the several 



99 

groups. As the cost of construction for the whole country ex- 
ceeds the net capitalization by about 12 per cent., anyone in- 
terested can arrive at an approximation of the cost in any par- 
ticular group by adding such percentage to its net capitalization 
per mile. The difference between cost and capital, however, 
varies greatly in different groups. 

The comparative data of the above table leads up to a wider 
field of comparative statistics. 

LOFG» 



100 



VII 



COMPARATIVE CAPITALIZATION 

Candidly considered, nothing in the history of American rail- 
ways should redound more to their credit than their low capital 
as compared with either the cost or capitalization of the rail- 
ways of other countries — unless it be the cheapness of their 
freight rates. In either or both respects comparisons are odious 
— to their detractors. 

The plain unvarnished facts on this point, from official sources, 
are presented in the following table: 

Capital or Cost of Construction. 
European Railways. 



Year. 



1905 
1903 
1905 
1904 
1904 
1904 
1903 
1903 
1903 
1905 
1905 
1904 
1904 
1904 
1904 
1904 
1904 



Country. 



United Kingdom 
Russian Europe. 
German Empire. 

France 

Austria 

Hungary 

Italy 

Spain 

Sweden 

Norway 

Denmark 

Belgium 

Holland 

Switzerland 

Bulgaria 

Servia 

Roumania 

Total 



Miles of 
Line. 



22,847 

30,050 

34,048 

24,755 

12,710 

11,069 

10,016 

8,559 

7,551 

1,526 

1,992 

2,520 

2,060 

2,603 

751 

440 

1,974 



175.471 



Capital or Cost 
of Construction. 



$6,247,240,553 

2,833,853,000 

3,486,711,237 

3,313,980,000 

1,378,308,847 

695,188,847 

1,102,811.500 

813,105,000 

230,242,016 

67,087,216 

52,352,500 

408,836,500 

139,769,000 

269,083,877 

29,707,000 

24,350,000 

150,579,877 



$21,233,206,970 



Cost per 
MUe. 



$273,438 

94,304 

102,435 

133,871 

108,443 

62,805 

110,104 

96.000 

30,491 

37,409 

26,281 

162,236 

67,849 

103,374 

39,556 

65,341 

76,281 



$121,007 



101 



Other Parts of the Globe. 



1905 
1904 
1906 
1902 
1905 
1906 
1904 
1906 
1906 
1904 
1906 
1904 
1905 



Canada 

British India 

Japan 

Argentine Republic. . 

Mexico 

New Zealand 

Victoria 

New South Wales 

South Australia 

Queensland 

Central South Africa. 

Cape Colony 

Natal 



21,353 

27,560 

4,488 

10,798 

6,503 

2,406 

3,371 

3,390 

1,745 

2,928 

2,158 

2,533 

783 



$1,332 
1,182 
217 
568 
376 
111 
200 
212 

66 
101 
112 
128 

63 



,498,704 
,500,000 
,295,827 
,000,000 
,181,625 
,469,900 
,721,920 
,458,620 
,280,700 
,718,690 
,053,255 
,830,273 
.103.239 



$62,403 
42,906 
48,417 
52,602 
57,847 
45,826 
59,543 
62,672 
37,982 
34,739 
51,899 
50,861 
80.592 



The United States. 



1906 



14,475 $11,671,940,649 $54,421 



Taken singly or collectively, the obvious comparisons of this 
table are a triumphant refutation of the charge that American 
railways are over capitalization. 

And when it is considered that they have been constructed 
by labor w4iose wages has always been from two to twenty 
times* higher than the wages paid in other countries, the con- 
trast would pass belief were the figures not incontrovertible. 

Cost of British Roads. 

An examination into the conditions in the several countries 
only deepens the first impression of amazement over what has 
been accomplished in America with low capitalization. 

In Great Britain, railways were built from the start in the 
most substantial manner. The Liverpool and Manchester road, 
upon which Stevenson made his successful demonstration of the 
tractive capacity of the locomotive, is said to have cost $4,100,- 
000, or $100,000 per mile. The rails were of forged iron, 35 
pounds to the yard. These rested on cubes of stone let into 
the ground three feet apart, and the track was amply strong 
for engines whose original weight was figured not to exceed 
six tons — the Rocket was only 4J tons. 



*In India laborers "are paid from 4 to 8 cent.s per day; in' Japan from 10 to 15 cents. 



102 



In 1850, when official statistics first took cognizance of British 
railways as a whole, their capital cost was well over $100,000 
per mile. Since i860 it has steadily risen, as appears from the 
following table: 



Year. 


Miles of Line. 


Paid-up Capital. 


Capital per Mile. 


1850 


6,621 
10,433 
15,537 
16.658 
17,933 
19,169 
20,073 
21,174 
21,855 
22,847 


$1,170,118,528 
1,695,293,718 
2,580,655,237 
3,069,188,415 
3,546,903,049 
3,973,228,727 
4,370,688,766 
4,875,406,776 
5,727,129,204 
6,247,240,553 


,$176 728 


I860 


162 49S 


1870 


166 090 


1875 


184 247 


1880 


197 786 


1885 


207 273 


1890 .... 


217 739 


1895 


230 254 


1900 


262 051 


1905 . . . . . 


273 438 







Here we find between 1870 and 1905 an increase of 142 per 
cent, in capitalization against an increase of only 47 per cent, 
in mileage. The increased cost amounts to no less than $107,- 
348 per mile, or double the present capitalization per mile of 
the railways of the United States, and more than that of those 
of the German Empire. 

Nor is this startling increase in the average capitalization of 
British railways to be accounted for by extraordinary expendi- 
tures for double track. The percentage of second track in 1870 
was practically the same as in 1905, being 54 per cent, in the 
former year against 55.5 in the latter. 

The explanation of the very high capitalization of British 
roads is to be found in the heavy cost of right of way owing to 
the density of population when railway building began, heavy 
masonry and tunnelling work, and the system adopted in the 
United Kingdom of charging betterments and improvements 
to capital account and dividing practically all net receipts among 
security holders. In 1871 there were 261 persons to the square 
mile in the Kingdom and no less than 391 in England, or a 
greater density than that of Massachusetts in 1906. The pres- 
ent density for England and Wales is 558 per square mile. 

The initial cost of right of way of British roads indicates what 
would be the expense of securing right of way in populous terri- 
tory in the United States today, and has an important bearing 



103 

on the question of what it would cost to reproduce American 
roads under twentieth century conditions. 

An analysis of the elements of cost of seven of the principal 
British railways made by the London Mining Journal in 1844 
gives the following interesting averages : 

Seven British Railways 1844. 

( £ = $4.80 then.) 



Cost per Mile. 



Parliamentary expenses 

Law charges, engineering and direction. 

Land and compensation 

Railway works and stations 

Carrying establishment (equipment) 

^ Total ($175,680) 



£1,000 
1.600 
5,000 

26,000 
3,000 



£36,600 



The three leading lines, viz., the London and Birmingham, 
the Great Western and the Southwestern cost £47,000 ($225,- 
600) per mile, and ''the average cost of all the English passenger 
lines was £34,600 ($166,080)." 

Discussing these averages, the London Mining Journal said: 

''The United States had 3,500 miles of railway open in 1839. 
None of these cost more than £10,000 per mile, and the average 
of the whole was only £4,800. It is true some of these are 
single, and others are oi slight construction ; but it is a startling 
fact that the best American railways, which are said to be 
little inferior to ours, are made at one-third the expense." 

The attention of the reader is called to the item of £5,000 in 
the above table for "Land and Compensation." It will be per- 
ceived that it exceeds the entire average cost of American rail- 
ways in 1839. Many early railways in the United States were 
built and equipped for less than the average sum paid by 
British roads for parliamentary, legal and engineering charges. 
It will also be observed that less than one-twelfth of the cost of 
British roads was invested in equipment. Of the chief item, 
£26,000 ($124,800) for "railway works and stations," the same 
London publication above quoted said: 

"Useless expense, too, has often been incurred in the execu- 
tion of railways from the ambition of engineers to render the 



104 

works monuments of their own skill by making all the parts 
unnecessarily strong or unnecessarily perfect." 

The engineers of British railways laid them out and con- 
structed them as if they were building for eternity and already 
knew all the demands the future was to put upon their work. 
American engineers confronted a different problem in a differ- 
ent and wiser spirit. They suited their plans to their genera- 
tion, recognizing that transportation on this continent was in 
its infancy, and that nothing they could do, with the capital 
and experience at their command, could possibly anticipate the 
star of empire in its western flight over what in 1839 was mostly 
wilderness. 

The monumental British roads of 1844, reconstructed up to 
date, would be ground to dust beneath the traffic which daily 
passes over the leading American lines. This is no mere fig- 
ure of speech., for the best British construction of today has been 
tested on the Pennsylvania road and found wanting in stability 
under 90 and 100 ton engines drawing loads of 1,000 tons and 
upwards. 

In passing it may be said that the Great Western Railway 
mentioned above as one of the leading British roads had a 7- 
foot gauge down to 1892, and that the London and North- 
western Railway, which swallowed the London and Bir- 
mingham also referred to above, has a paid up capital of £122,- 
662,484, or over $347,508 per mile. The Midland Railway, how- 
ever, surpasses this with $404,366 per mile. 

As if to further emphasize the contrast in capitalization be- 
tween British and American railways it may be said that our 
locomotives average more than twice as heavy, while our freight 
cars average 33 tons capacity to under 12 tons for theirs. 

Today the railways of the United States are capitalized at 
less than one-fifth the paid up capitalization of British rail- 
ways. 

Cost of German Railways 

At all stages the capital cost of the railways of Germany 
has been about double that of American railways, and less than 
half that of British roads. From such data as is available the 



105 



following statement of their cost at different periods is sub- 
mitted: 



Year. 


Miles of Line. 


Cost. 


Cost per Mile. 


1868 


10.600 
11,730 
20,690 
24,270 
♦28.071 
30.956 
34,048 


$823,030,000 
993,480,000 
2,098,970,000 
2,410,650,000 
2,777,487,620 
3,025,111.981 
3,486,711,237 


$77,644 


1870 


84.695 


1880 


101 448 


1888 


99.326 


1895 


98,945 


1900 


97,723 


1905 


102.435 







♦Since 1895. inclusive, the figures are oflScial; prior to that they are Mulhall's. 

The increase in mileage and cost per mile between 1870 and 
1880 is significant of the change that took place under the con- 
solidating hand of Bismarck. It unified German railways at an 
increased cost of over $16,000 per mile. 

The reasons why the cost of Germaa railways is less than 
that of British are four fold — labor is cheaper there, population 
is not (especially was not) so dense, the physical problem was 
easier and they were not so well built. They were more ex- 
pensive than American roads despite the cheaper labor and 
easy engineering because of the density of the population and 
the costly bureaucratic methods of construction. 

The average daily wages of an unskilled laborer in Germany 
in 1840 was about 32 cents against 49 cents in England and 90 
cents in the United States. Relatively wages in the several 
countries have remained about the same ever since ; in Germany 
ranging from 48 cents to 75 cents now, in Great Britain from 
60 to 85 cents and in the United States from $1.25 to $1.75. 
In the working of railways the three systems are confronted 
with the same difference in the cost of labor which absorbs 
60 per cent, of all operating expenses. 

In 1837 the territory now included in the German Empire 
had a population of 31,589,547, or -151 persons to the square 
mile, where, about the same time^ England and Wales had 273; 
Massachusetts in 1840 had 92, and the whole United States only 
8.4 per square mile. In 1900 Germany had a density of 270 
to the square mile, or still only about half that of England, but 
ten times greater than that of the United States. 

The cost of constructing the railways of Germany was very 



106 



mueh less than in Great Britain by reason of thfe -topography 
of the country. Speaking of this feature of the difference in 
cost Edwin A. Pratt, in his "German vs. British Railways," 
says : 

"Between the Hook of Holland and Berlin the railway doe^ 
not pass through a single tunnel (there is in fact not a single 
railway tunnel in the whole of North Germany), nor does it 
pass through a single deep cutting, or along a single high em- 
bankment. Bridges and viaducts across rivers are the only 
engineering works of special importance that had to be under- 
taken." In England tunnels, cuttings, embankments and 
bridges abound and have swelled the total cost. 

In America where mountains have been pierced and mighty 
rivers spanned and every engineering problem known to railway 
construction has been surmounted, the Cost of railways has 
been only one-half that through the level plains of North Ger- 
many. 

Cost of French Railways. 

French railways whether built by the government or by com- 
panies show a capital expenditure more than two and a half 
times greater than ours. Railway history in France begins with 
1840 and Mulhall gives the cost of early construction as fol- 
lows: 





Cost per Mile. 


Ratio.. :-| 


LSLnd . ; '. ...'....;• 


£ 2.540 

11,430 

12,700 

5,080 


8 0' 


Ejarthworks ; . . s , . 


36 


Itails en'''in6s cars 


40 


Stations, etc.. ^ .-.....•.. .'.-. . . . 


16;. 


Total : 


^31,750 


100 







This may be compared with the cost of the Paris and Rouen 
road as given in the London Mining Journal, reprinted in the^ 
American Railroad Journal (January 36, 1845) as follows: 



Law charges, engineering and direction. 

Land and compensation 

Railway works and stations. : 

Carrying establishment (equipment) . . . , 

Total 



£ 800 
2,300 

17,000 
2,400 



•£22,500 



107 



As the line from Paris to Rouen was described as one of 
"the two most important railways in France" in a contempo- 
raneous technical publication, it does not seem credible that 
Mulhall's average figures for 1840 can be correct. By 1885 he 
says the average cost had "diminished" to "exactly £27,000." 
Since 1895 we have the following official data: 



Year. 


Miles. 


Cost of Construction. 


Cost per Mile. 


1896 


22,649 
23,701 
24,755 


$3,060,697,600 
3,202,901,600 
3,313,980,000 


$135,136 
135,138 
133 871 


1900 


1904 







The greater cost of French roads compared with German is 
probably due to the greater density of population and conse- 
quent increased expeditures for land damages when they were 
originally built. These it will be perceived in the case of the 
Paris and Rouen road amounted to over $11,000 per mile at a 
time when there were 178 persons per square mile in France to 
only 151 in Germany. The condition as to density of population 
has been reversed in late years. 



The high cost of railways in Belgium is almost wholly at- 
tributable to the combination of density of population with 
state extravagance either in constructing or acquiring them. 
Belgium had a population of over 360 to the square mile in 
1830 which has ri^en to over 600 now, or more than double the' 
density of New Jersey. 

Cost of Japanese Railways. 

Perhaps the most instructive sidelight as to the cost of modern 
railways is to be obtained by comparison with those of Japah. 
How absolutely modern is the experience of Japan with rail^ 
ways may be judged from the fact that in 1871 there was not 
a single mile of line in the empire, which even then had a popula- :. 
tion of 33,000,000, or more than 200 persons to the square mile.''- 
As late as 1880 the railway mileage of Japan was only ,121;.. 
miles. '........ M^v^ 

The last report of the Director of the Imperial Railway Bureau 
of Japan states the total mileage open for traffic to March 31, 
1906, to be — 



108 



Railway Mileage in Japan. 



Government railways, 
Private 

Total 



1,532 miles. 
3,251 miles. 



4,783 miles. 



His report further shows that the cost of constructing this 
mileage has been: 





Yen. 


Cost per Mile 
(Dollars). 


Government railways 


159,918,445 
251,640,590 


$52 202 


Private railways 


38,742 






Total 


411.559,035 


$43,056 



In a separate table "the average construction cost per mile of 
railways open for traffic" is given as follows: 



Government railways. 
Private railways 



Average Cost 
per Mile. 



$52,202 
38,742 



$43,056 



Exclusive of Roll- 
ing Stock Cost. 



$44,201 
31.339 



$35,461 



This leaves an average of $7,595 per mile as the cost of roll- 
ing stock, the character of which is shown to be as follows: 

1,717 locomotives, average weight 45.3 tons. 

5,340 passenger cars, average seating capacity 33.7 per car. 

27,183 "Goods wagons,' average loading capacity 6.8 tons per 
wagon. 

The passenger carriages are divided into the following 
classes : 



First class 

Second class 

Third class 

Composite 1st, 2d or 3d class. . 

Composite 2d or 3d class 

Composite 2d, 3d or brake van. 

Miscellaneous 

Post or brake van 

Total 



106 
628 
2,989 
349 
167 
411 
86 
704 



5,340 



109 



Compared with those of the United States the railways arc 
supplied with the following rolling stock per mile of line: 



Locomotives . . 
Passenger cars. 
Freight cars. . . 



Japan. 

No. per 10 Miles 

Open. 



3.6 

12.8 
£6.8 



United States. 
No. per 10 Miles. 



2.2 

1.8 

80.0 



The difference in number of locomotives per mile against the 
United States is more than made up by the greater weight of 
engines on American lines. These average over 63 tons ex- 
clusive of tenders to 45.3 tons including tenders for the Japan- 
ese roads. The passenger traffic in Japan accounts for almost 
three-fifths of the railway receipts and for the large number of 
cheap cars. The capacity of our rolling stock for freight is fully 
six times greater per mile than that of Japan. 

If the cost of rolling stock for Japanese railways was over 
$7,500 per mile it is a reasonable estimate to say that the 
rolling stock of American railways has cost $15,000 per mile. 

The aggregate capital of the private railway companies of 
Japan in 1906 was 291,256,800 yen; or $19,808,105 more than 
their reported cost of construction. That this was in no proper 
sense an over capitalization is proved by the fact that the Japan- 
ese government in its scheme to nationalize the railways of the 
islands, already passed by the Imperial diet, has fixed the price 
of the seventeen private roads it proposes to acquire far above 
the cost of construction, as the following table shows: 



no 



Price to be Paid for Japanese Roads. 



Road to be 
Acquired. 



Nippon 

Sanyo 

Kobu.... 

Kansai 

Saugu 

Sobu 

Boso • . 

Kyoto., 

Kankaku 

Kokuyetsu 

Nishinari 

Nanao, 

Ganyetsu 

Tokushima 

Kyushu 

Kokaido-Tanko 
Kokaido 

Totals 



Mileage. 



860 

406 

28 

280 

26 

73 

39 

22 

94 

86 

5 

34 

50 

22 

446 

208 

158 



2,837 



Cost of 
Construction. 



$26,682,021 

17,917,923 

1,747,066 

13,619,200 

930,432 

2,604,331 

1,024,596 

1,725,099 

3,189,689 

3,564,973 

876,564 

762,407 

1,293,478 

644,703 

25,473,758 

5,756,896 

5,239,645 



$113,052,776 



Price Fixed for 
Nationalization. 



$65,266,270 

37,021,490 

4,864,510 

15,604,030 

1,886,920 

5,163,240 

960,760 

1,381,735 

3,175,963 

3,566,980 

978,257 

715,186 

977,949 

617,961 

48,827,300 

14,584,090 

5,462,394 



$211,055,035 



Ratio Net 
Earnings to 
Cost, 1906. 



15.3 

10.4 

11.2 

6.4 

10.8 

10.9 

5.8 

3.0 

5.6 

5.4 

5.1 

4.7 

3.5 

4.7 

9.7 

12.5 

1.6 



This figures out $74,393 per mile as the purchase price of 
roads whose original cost of construction was slightly under 
$40,000. 

The Japanese government arrived at its valuation of the 
several railways by multiplying the average net profits in 1902, 
1903 and 1904 by twenty, dividing the product by the cost of 
construction and multiplying the quotient by the paid up capi- 
tal. A glance at the last column of the table shows that the 
value of a line was fixed at approximately the, cost of construc- 
tion where net earnings were 6 per cent, on such cost. Where 
the roads earned more the price advances until it reaches 150 
per cent, for the prosperous Nippon and Kokkaido Colliery lines. 
''Strategic significance" apparently played some part in the 
estimate of the value of the last named road. 

Twenty times the net earnings of the railways of the United 
States during the years 1904, 1905 and 1906, including taxes in 
operating expenses would place their value at $12,811,204,320. 
Excluding taxes and payments for betterments and improve- 
ments from operating expenses would give them a value of 
$I4,505P33>I20. 



Ill 

If the Japanese formula were applied to American lines sev- 
erally as it was to those of Japan, their aggregate estimated 
value would be still greater. 

The development of engineering science as applied to rail- 
ways and the cheapness of Japanese labor during the period 
since they were first projected account for their comparatively 
low cost of construction. The cost of labor in Japan can be 
judged from the following statement of the average rates for 
train crews : 



Enginemen. 
Firemen . . . 
Conductors. 



22 cents to $1 .00 per day. 
15 cents to .37 per day. 
12 cents to .42 per day. 



In Japan unskilled laborers receive from lo to 30 cents a 
day according to the nature of their employment and their 
efficiency. 

The average receipts for freight on the government railways 
in 1906 was 2.01 sen (i.oi cents) per ton mile against 1.80 sen 
(9.90 cents) on the private roads, and for passengers 1.43 sen 
(0.72 cents) per mile on government roads against 1.32 sen 
(0.66 cents) per mile on the private roads. 

Cost in Other Parts of the World. 

The low cost of the railways of British India is traceable to 
minimum expenditures for land and labor; the latter is even 
cheaper than in Japan, the daily wage of unskilled labor being 
from 4 to 8 cents. Moreover, 7,318, or over one-quarter of the 
27,560 miles of Indian railways are only metre or 3 feet 3f-inch 
gauge roads and correspondingly cheap in construction. 

The variation in the cost of the railways in Australian colo- 
nies from $34,739 per mile in Queensland to %62fi']2 in New 
South Wales is almost wholly a matter of difference in gauges. 
Queensland has a standard narrow gauge of 3 feet, 6 inches; 
South Australia has 507 miles of 5-ft. 3-inch gauge, and 1,238 
miles of 3-ft. 6-inch ; New South Wales has a standard gauge 
of 4-ft. 8^-inch, and Victoria has 78 miles of 2-ft. 6-inch gauge 
and the balance is of broad 5-ft. 3-inch construction. 

Compared with those of Queensland and South Australia 



112 

the capital cost of $45,826 per mile for the narrow 3-ft. 6-in. 
gauge government railways of New Zealand appears excessive. 
And this is emphasized by the fact that 1,562 of the 2,406 miles 
in the colony is laid with steel or iron rails of 53-lb. to the 
yard or under. 

The advance in the cost per mile of New Zealand railways 
since 1899 is shown In the following statement: 

Cost of New Zealand Railways. 





Cost per MUe. 
(3-ft. 6-in. Gauge.) 


1899 


$38,225 
38,755 
38,546 
39,734 
41,083 
43,717 


1900 


1901 


1902 


1903 


1904 : 


1905 


44,516 


1906 


45,826 







An increase of $7,280 or nearly 19 per cent, in cost of con- 
struction per mile in the last five years, without any extra- 
ordinary work to account for it, would disturb the financial 
complacency of any less optimistic organization than the gov- 
ernment of New Zealand. Between 1901 and 1906 the gross 
earnings of New Zealand railways increased over 36 per cent, 
but the percentage of working expenses to earnings rose from 
65.30 to 69 while the percentage of net earnings to capital fell 
from 3.47 to 3.24. 

It is impossible to reconcile such conditions with the ideas 
of economical railway management which prevail in the United 
States. 



The high cost of the narrow gauge (3-ft. 6-inch) railways of 
the British South African colonies is due to the combination 
of government construction and the scarcity and consequent 
high wages of efficient white labor. 

An interesting fact in connection with the capitalization of 
Canadian railways, which differs materially from their reported 
cost of construction, is that these two items for the Intercolonial 



113 

Railway (the government road) are reported at the same amount, 
$81,238,728. This is over $54,800 per mile and $1,472 per mile 
more than the capitalization of the railways of the United 
States for the same year. 

One thing stands out distinct above all others as the con- 
clusion to be drawn from this comparative resume of the cost 
or capitalization of the railways of the world, and that is that 
the capitalization of the greatest and most efficient system is 
less per mile than that of any other except those of relatively 
insignificant extent and traffic. 



114 
VIII 

COST OF REPRODUCTION 

Thus far we have considered only the cost of the construc- 
tion and equipment of the railways of the United States as it 
appears in their general balance sheet as an offset to their 
capitalization. In this it has been established to a reasonable 
certainty that their cost has apparently exceeded their net cap- 
italization by approximately $1,328,160,000. 

Many students and economists, however, maintain that the 
true measure of the value of American railways is not in what 
they have cost, or in their earning power, or what their securi- 
ties stand for in the open markets of the world, but the sum 
for which they could be duplicated or reproduced today. If it 
were possible to secure an appraisement of this so much talked 
of cost of :eproduction by a thoroughly competent, conscien- 
tious and impartial tribunal, it would go far to correct the pop- 
ular impression that American railways are overcapitalized. The 
difficulty would be to secure appraisers with the requisite capac- 
ity, industry and impartiality. With their experience in the 
past the railways may well look askance upon any commission 
appointed to probe into their affairs. It is common knowledge 
that in recent years familiarity with any branch of railway 
management has been an almost universal disqualification for 
appointment to any official body charged with the duties con- 
templated in legislation to regulate railways. It is to the 
credit of our common citizenship that our railway commissions 
have in time become as efficient as some of them are. In a 
matter where it is possible for a United States senator to make 
a mistake of seven billions in judgment or animus, I care not 
which, it must be obvious that the appointment of a commis- 
sion to make an official valuation of the cost of reproducing the 
railway system of the United States calls for the human wis- 
dom of an yVbraham Lincoln and the almost superhuman mental 
detachment of a George Washington. 



115 

Granting that reasonably competent appraisers could be 
found and Avere appointed, they would be confronted with a 
task- whose conditions would grow beyond them no matter 
how fast they worked, just as the demands of American indus- 
trial development have outstripped the strained resources of its 
transportation facilities. Besides taking into consideration the 
infinite minutiae and staggering aggregate of the business 
we have been discussing, any such inquiry would have to put 
a valuation upon the almost priceless advantages of location and 
terminals of present railway systems separately. These, except 
as they have been included in transfers of ownership under fore- 
closure proceedings or in reorganizations, are not represented 
in the present book cost of the railways. In many instances 
the terminal rights, facilities and property of existing railway 
companies are Avorth as much as their total capitalization. 

Then, there are their "intangible assets." ■ In Texas the Tax 
Commissioner has valued these at $152,827,760 over and above 
the $188,600,939 valuation placed on their physical property by 
the Railroad Commission. 

In his testimony before the Industrial Commission on Trans- 
portation in 1899, Samuel R. Callaway, then president of the 
New York Central, testified: 

"I suppose our property in New York is worth more than the 
entire capital of the road. In fact, you cannot duplicate it for 
anything." 

Nobody familiar with the New York Central's property in 
New York City and what it means both to the railway and 
the people of the United States will doubt the accuracy of Mr. 
Callaway's statement. The Pennsylvania Railroad is spending 
over $100,000,000 to secure a terminal by tunnels that will bear 
any comparison to those obtained by its great rival "for a song" 
when New York City above 42d street was mostly a picturesque 
rocky pasture for goats. The original cost of the New York 
and Harlem Railroad, which included right of way to the heart 
of the city, seventy years ago was only $2,200,000, or less than 
$84,000 per mile for its 26 miles of line. 

After it had spent months and probably years to fit itself 



116 



for the work such a conscientious Commission would find that 
it could only conclude its endless task by adopting some law of 
averages, and applying them with such discretion as it might 
possess. Any attempt to deal with details would be to emulate 
the unnecessary labor of Sisyphus with an accumulating mass 
to which his fabled rock would seem a mere pebble. When 
completed, while the valuation might be labeled "official," it 
would be no more capable of demonstration than the following 
estimate made from the best evidence at the command of a 
single investigator: 

Cost of Reproduction of the Railways of the United States 
AS of June 30, 1906. 



Cost of construction 214,475 miles single track at $35,000 per mile . 
Cost of construction 94,743 miles auxiliary track at $10,000 per mile 

Cost of Equipment 

Block Signals, 50,000 miles 

Cost of Right of Way, present location and Terminals 

Real Estate, Shops, Tools and Material 

Total 



$7,506,625,000 

947,430,000 

2,760,000,000 

60,000,000 

3.000,000,000 

600,000,000 



$14,773,055,000 



Cost of Construction. 

That the foregoing estimate of $35,000 per mile as the cost 
of physically constructing the 214,475 miles of single track in 
the United States is a reasonable one may be judged from the 
following figures of actual construction by several companies 
during the past seven years : 

Examples of Cheap, Typical and Expensive Construction in 
THE United States since 1899. 



location. 


Inexpen- 
sive 


Typical 


Expensive 


Eastern Road 


$18,300 


$35,000 
57,892 
63,500 
60,112 
31,678 
42,949 
28,000 
23,730 


$132,532 


Eastern 


204,809 (d) 


Central 






Southern 


19,663 


133, 533(d) 






Southwest 


11,345 
15.000 
10,350 


66,771 


Western 


274,000(d) 
229, 480(d) 








$14,931 
180 


$42,620 
610 


$173,520 




67 







(d) Double track. 



117 



This statement yields the following summary: 



CLASS 



Miles 



Aggregate 
Cost 



Inexf)ensive construction 

Typical construction 

Expensive construction 

Total 

Average per mile 

Less average cost of rigt of way. . . 

Net average cost of construction... 



180 

510 

67 



$2,687,580 
21,736,200 
11,625,840 



757 



$36,049,620 
47,622 
10,388 



$37,234 



In the statements for the typical roads included in the above, 
it appeared that the average outlay for right of way was $6,975 
per mile. If this is deducted from the average cost of these 
roads it leaves a net average cost of $35,645, which is in sub- 
stantial agreement with the average as derived from the above 
combination of the three classes of construction. This, it is 
submitted, justifies adopting $35,000 as the average cost of con- 
struction throughout the United States, exclusive of cost of 
right of way. 

Moreover, it should be said that the most expensive piece 
of construction brought to the writer's notice in his inquiries, 
averaging $816,800 per mile, was not included in the above 
summary, because of its exceptional character, involving ter- 
minal rights, etc. The cost of getting into any of the larger 
cities is not included in any of these computations. 

In further substantiation of the basis of accepting $35,000 
as the basis for estimating the cost of construction in repro- 
ducing the railways of the United States, the following com- 
posite statement of expenses of typical single track construc- 
tion derived from reports of three different railways — 320 miles 
represented, is submitted: 



118 



Composite Statement of Typical Items. 



ITEM 



Engineering 

Station grounds 

Real estate 

Grading 

Tunnels 

Bridges, trestles and culverts. 
Ties 



Ralls 

Track fastenings 

Frogs and switches 

Ballast 

Track laying and surfacing 

Fencing right of way 

Crossings, cattle guards and signs . . . , 
Interlocking and signal apparatus.. . . 

Telegraph lines 

Station buildings and fixtures 

Shops, engine houses and turn tables . 

Shop machinery and tools 

Water stations 

Fuel stations 

Electric light and power plants 

Miscellaneous structures 

Legal expenses 

General expenses 



Total. 



Average 

cost per 

mile 



$1,291 



15,418 

365 

7,226 

2,071 

3,944 

737 

115 

1,490 

2,723 

315 

93 

48 

145 

801 

153 

25 

510 

240 

31 

155 

30 

511 



$38,437 



In order that the reader may perceive for himself where the 
difference in cost between expensive and inexpensive construc- 
tion occurs, the following composite summary has been pre- 
pared from two sets of returns from each of the classes included 
in the general summary above : 

Itemized comparative statement of cost of expensive and 
inexpensive construction derived from the reports of two of 
each kind: 



119 



Cost of Items in Cheap and Expensive Construction. 



Engineering 

Right of way and station grounds 

Real estate 

Grading 

Tunnels 

Bridges, trestles and culverts. . . . 
Ties 



Rails 

Track fastenings 

Frogs and switches 

Ballast 

Track laying and surfacing 

Fencing right of way 

Crossings, cattle guards and signs. 
Interlocking and signal apparatus. 

Telegraph lines 

Legal expenses 

General expenses 



Total. 



Cheap con- 
struction, 
average of 
21 miles. 
Cost per mile. 



$830 



4,224 



3,015 
898 

2,575 
523 
106 
385 

1,703 

161 

60 



120 



21 



$14,615 



Expensive 

construction, 

average of 

37 miles. 

Cost per mile. 



$1,468 



32 

32,702 

1,943 

10,001 

2,124 

4,418 

758 

167 

3,716 

3,710 

550 

175 



172 

26 

684 



$62,646 



In the case of one of the expensive examples the way lands 
and real estate cost $14,666 per mile and in the other $6,087 — 
in neither case was terminal rights involved. 

It will not escape notice that in none of these itemized state- 
ments is full provision made for interlocking and signal appa- 
ratus or many of the other fixtures and structures now re- 
garded as indispensable in the construction of a railway of 
modern efticiency. In the development of the American railway 
system such things come later — for few of our railv/ays are 
completely equipped in these respects before they are opened. 
Cost of construction is affected very much more by the nature 
of the country through which the railway runs than the stand- 
ard of its structures, although these vary greatly. My informa- 
tion shows that the inexpensive construction was in compara- 
tively level localities, with very little of what the engineers call 
"cross drainage,'" and consequently a minimum of bridges, tres- 
tles and culverts. Typical construction traverses a more or less 
undulating country, or follows a valley of some river crossed 
by tributary streams involving frequent, but not heavy cuts and 



120 



provisions for waterways. It has some rough country requir- 
ing cuts or fills which swell the item for grading. An exami- 
nation of the foregoing statements indicates in the differing 
cost of the items for grading and bridges why some roads cost 
only $15,000 a mile and others $35,000 and still others over 
$100,000. V/hen they get into the hills and mountains with 
cuts, fills and tunnels, or have to invest in heavy masonry or 
steel structural work the cost soars into the hundreds of thou- 
sands. 

The general conclusions from the foregoing statements as 
to cost of construction is borne out by a series of articles in 
the Railroad Gazette in the fall of 1906, dealing with the "Unit 
Cost of Railroad Building." Summarized, its examples of cost, 
"including preliminary surveys, clearing right of way, roadbed, 
ties, rails, ballast and side tracks, in shape for operation, but 
not including real estate, stations, equipment or signals," yield 
the following data: 

Examples of Cost of Construction. 
single track. 



Miles. 



12.13 
9.06 
15.77 
12.00 
4.10 
30.08 
10.72 



93.86 



Texas 

Pennsylvania.. 
Pennsylvania.. 
West Virginia. 

Ohio 

Pennsylvania.. 
West Virginia. 



location. 



Average, 



Year. 



Cost per 
mile. 



1904 


$19,649 


1902 


26,300 


1903 


37,014 


1904 


40,000 


1903 


40,700 


1901 


60,628 


1903 


78,000 



$46,527 



DOUBLE TRACK. 



Miles. 


location. 


Year. 


Cost per 
mile. 


11.00 


New York 


1898 
1903 
1905 
1899 
1903 


$ 50,000 


3.60 


New York 


76,000 


61.84 


Ohio 


100,000 


1.57 


New York 


105,186 


8.10 




154,000 








.76.11 


miles. Average cost per mile 




$97,492 


169.97 






$69,430 











121 



In only one instance does the Gazette give in detail the cost 
of the road — that of the 12.13 miles in Texas. This road follows 
the dividing ridge between two Texan streams, with no side hill 
cuts, considerable filling, with few openings and mostly on level 
ground; the details of cost are as follows: 



ITEM. 



Engineering 

Grading 

Bridges, treaties and culverts. . . . 

Ties 

Rails 

Track fastenings 

Frogs and switches 

Ballast 

Track laying and surfacing 

Crossings, cattle guards and signs 

Total 



Cost per 
mile. 



$ 522 

6,363 

3,434 

2,211 

3,101 

462 

97 

2,516 

784 

159 



$19,649 



It will be observed that several items of cost necessary to 
the completion of this piece of road are omitted from the state- 
ment, which nevertheless affords an interesting basis for com- 
parison with those previously given. 

In the same series of articles the Gazette prints the following 
data respecting quantities and cost of broken stone ballast per 
mile of track : 



Cubic yds. 
I>er mile. 



Cost per 
cubic yd. 



Cost per 
mile. 



Single track. 
Double track 
Four track.. 



2,323 

4,910 

10,085 



$0,904 
.904 
.904 



$2,099.99 
4,438.64 
9,116.84 



This agrees with the average cost of ballast where stone 
is used in th.c original returns from which the preceding state- 
ments were compiled. The total cost of ballasting the 309,218 
miles of track in the United States may be safely estimated at 
$600,000,000. 

In support of the foregoing may be cited the following state- 
ment of what it would cost to reproduce the Northern Pacific 
Railroad from figures filed by that road vrfth the Interstate 
Commerce Commission in June, 1907: 



122 



Estimated Cost to Construct the 5,785 Miles Included in 
THE Northern Pacific Railroad System in 1907: 



Cost per 
mile. 



Engineering (5,785 miles) 

Grading 

Tunnels.. 

Bridges, trestles and culverts 

Ties 

Rails 

Track fastenings 

Frogs and switches 

Ballast 

Track laying and surfacing 

Fencing right of way 

Crossings, cattle guards and signs . . . 

Signal apparatus 

Telegraph lines 

Station buildings and fixtures 

Shops, round houses and turn tables 

Machinery and tools 

Docks and wharves 

Water stations 

Fuel stations 

Warehouses 

Miscellaneous structures 

Seattle terminal facilities 

Ferry equipment 

Legal expenses 

General expenses 

Interest and discount 

Contingencies 

Total.... 



$ 1,500 

12,303 

757 

3,517 

2,387 

4,765 

632 

204 

1,424 

1,309 

131 

50 

29 

249 

434 

686 

190 

251 

340 

110 

: 498 

397 

425 

106 

50 

50 

6,159 

2,245 



$41,198 



As the Northern Pacific has about i,6oo miles of auxiliary 
track estimated to have cost $16,000,000, the average cost would 
be reduced to about $38,000 per mile of line, or $3,000 more than 
is herein estimatied, for the entire country. 

Cost of the Northern Pacific right of way will be considered 
elsewhere. 

Cost of Auxiliary Track. 

With the exception of a few miles, none of the construction 
included in the compilations from which the average cost of 
building American railways was deduced covered double or other 
track. In the cases cited from the Railroad Gazette, one mile 
of siding was included to every nine miles of single track — rthe 
average cost of which however was $46,527 per mile. My esti- 
mate of $10,000 per mile for auxiliary track, covering second. 



123 



third, fourth, yard track and sidings, is based on returns cover- 
ing over 400 miles, some of which give instances of additional 
track construction costing as high as $18,000, $21,000 and $23,000 
per mile, according as the particular work involved more or 
less reconstruction of the original main track. Scarcely any of 
such secondary track work fails to involve some revision of the 
grades and additional expense on the primary track. One piece 
of double tracking in the middle west cost $3,350,000, in round 
numbers, for 335 miles, or $10,000 per mile. Irrespective of all 
other expenditures incidental to track laying, the following 
items of everage cost are unavoidable : 

Cost of Standard Items in Auxiliary Track. 



ITEM. 



Cost per 
mile. 



Grading. 



Rails (65 lbs. per yard). 

Track fastenings 

Frogs and switches 

Ballast 

Track lajdng 



$1,700 
1,300 
3,200 
400 
40 
1,400 
1,800 



Total for six items. 



$9,840 



As this list is far from exhaustive, or from furnishing a high 
average piece of subsidiary track construction, it is safe to 
estimate the average cost of all descriptions of auxiliary track 
at $10,000 per mile, or $947,430,000 for the whole railway system 
of the United States. 

Cost of Reproducing Equipment.' 

From what has been previously written in regard to the 
present cost of railway equipment, it is only necessary to say 
here that it could not be reproduced for less than the average 
price of locomotives, and passenger and freight cars. Briefly 
stated, the number and cost of railway equipment of June 30, 
1906,, was approximately as follows: 



Locomotives, 51,672 at $12,000. . 
Passenger cars, 42,262 at $6,000. 
Freight cars, 1,837,914 at $1,000. 
Work cars, 78,736 at $600 



Total cost. 



$ 620,064,000 

253,572,000 

1,837,914,000 

47,241,600 



$2,758,791,600 



124 



That the estimated cost of locomotives is a reasonable one 
is proved by the following weights and prices of current types 
of locomotives in 1905 furnished by the Baldwin Locomotive 
Works company: 



Weight 
(excluding 
tender) 
pounds. 



Cost 



American type. . . . 

Atlantic type 

Pacific type 

Ten Wheel type.. . 
Consolidation type. 



102,000 
187,200 
227,000 
156,000 
192,460 



Average price. 



$ 9,410 
15,750 
15,830 
13,690 
14,500 

$13,836 



Moreover, the price of locomotives has advanced considerably 
since 1905, and will continue to advance so long as the cost of 
labor and material and the unabated demand for more engine 
power continues. 

As to the cost of passenger cars, their price varies from $4,000 




New All-Steel Postal Car — Union Pacific. 

to $14,000 with the ruling average, including postal and baggage 
cars, rather over $6,000. 

It is pertinent to this discussion to quote the recent decision 
of Commissioner Lane in a case before the Interstate Commerce 
Commission involving separate accommodations for white and 
colored passengers on the Nashville, Chattanooga and St. Louis 
Railway, where he found that: 

"The cost of the car allotted to negroes was in the neighbor- 
hood of $8,T00, while that of the other passenger coach in defend- 
ant's No. 93 train was about $8,800. The expense of the small 



125 



smoking compartment in the latter accounts for nearly all the 
difference in cost between the two cars." 

The history of the road to which this case relates is worthy 
of study for the light it sheds on another phase of this subject. 
The construction of the Western and Atlantic Railroad, now 
leased to the Nashville, Chattanooga and St. Louis Railway, 
was begun by the State of Georgia under legislative sanction 
as far back as 1836, but the last rails from Atlanta to Chatta- 
nooga were not laid until 1851. For a period of nearly twenty 
years, rich in vicissitudes and scandals, the state undertook 
its operation, and finally, in 1870, leased it to a private com- 




Intehior of Steel Postal Car — Union Pacific. 
(See preceding page.) 

pany at a rental of $300,000 per year, being 6 per cent, on 
$5,000,000, or $36,232 per mile, the road was said to have cost. 
In 1890 the road was again leased to the present lessees for 29 
years at $420,012 per annum, all renewals and improvements 
made by the lessee. By the arrangement the state is receiving 
8.4 per cent, on its original investment, or 4.2 per cent, on a 



126 



present valuation of $10,000,000 or over $72,000 per mile, with 
no risk through a depletion of the lessee's revenues in conse- 
quence of arbitrarily reduced rates. The example is an in- 
structive one as to the increase in the value of railway right of 
way in Georgia during twenty years, and indicates what it would 
cost to reproduce such a road today. 



The cost of freight cars runs from $600 up to $1,200 and 
$1,400 for the standard 80,000 pound car. Many ol the roads 
are being equipped with steel cars and high grade refrigerator 
cars. There are standard prices for different parts of freight 
cars used in settlements between railways which support these 
figures. For instance : 



Bodies of eight wheel box cars according to length, 32 ft. to 40 ft. or 



Ditto, ventilated, 34 ft. to 40 ft. or over 

Bodies of flat cars 32 ft. to 40 ft. or over 

Bodies of drop bottom gondolas according to capacity. . . 
Bodies of hopper bottom gondolas, according to capacity 

Trucks, 25 to 50 tons capacity, per pair 

Trucks with steel or steel tired wheels, extra per car 

Air brakes 

Steel couplers 



$330.00 to $440.00 


385.00 to 


470.00 


155.00 to 


200.00 


200.00 to 


330.00 


220.00 to 


440.00 


215.00 to 


425.90 




112.00 


27.50 to 


35.00 


8.75 to 


9.50 



When attached to an underframe varying in cost from $ioo 
to $300, according to material and capacity," these items can be 
assembled into low and high priced freight cars as follows: 



^ 


Low. 


High. 


Bodies '• 


$155.00 
100.00 
215.00 


$470 00 




300.00 


Trucks 


425.00 


Steel wheels 


112.00 


Metal bolsters 





40.00 






40.00 


Air Virnlcps 


27.50 
8.75 


35.00 


(~!oiir)lf»r«i 


9.50 






Total 


$506 25 


$1 431 50 







Freight cars, like other railway equipment, suffer deprecia- 
tion to the extent of from 15 to 20 per cent, from manufacturer's 
cost immediately they are put into service, becoming "second 
hand" in transit from shop to road. Notwithstanding this fact, 
it was brought out in one of the many recent investigations that 



127 

in 1902 the Berwind-White Coal Company bought 1,000 cars 
from the Pennsylvania Railroad at $1,187 P^^ car, and refused 
to sell them back at the same figure. 

It is well within the mark to estimate the cost of reproducing 
the railway equipment of the United States, as it stood on 
June 30, 1906, at $2,760,000,000. As it stands today, June 30, 
1907, it could not be reproduced for less than $3,000,000,000, 
for, apart from replacements, it has to be increased at the rate 



New Side Opening Suburban Car — Illinois Central. 

of over 10 per cent, a year or it becomes inadequate to the de- 
mands of American transportation. 

Present Value of Railway Right of Way. 

A scientific valuation of the right of way and real estate 
of the railways of the United States is an undertaking beyond 
the resources of the human mind. Like the estimate of the 
wealth of the United States by the Census Bureau, it must 
remain an approximation. Mine, as represented in the table of 
cost of reproduction of American railways, is $3,000,000,000, or 
about $14,000 per mile of line. If I had the courage of legitimate 
deductions from the evidence before me, the average would be 
$20,000 per mile and the aggregate over $4,400,000,000. 

That the right of way is valuable in proportion to density of 
population is a recognized principle the world over. But the 
relation varies according to the character of the population and 
the use to which the property is or may be put. In seeking 
for a basis by which to value the right of way I have utilized 



128 



this principle as modified by the actual experience of American 
railways. Happily, the Census Bureau furnishes data regarding 
the density of population per square mile and the value of land 
and improvements per acre throughout the United States. Con- 
crete instances of cost of right of way throughout the United 
States in recent years Avarrant the multiplication of the Census 
valuation by 15 to obtain the price which railways would have 
to pay for right of way, whether obtained at private sale, as 
most of it has always been, or by condemnation, as some of it 
has to be when negotiation fails. 

As so much depends on the reasonableness of this factor, let 
me explain how it is arrived at. 

To begin with, the Census Bureau average for the whole 
United States is universal, whereas, the railways have naturally 
selected their loutes through the most populous and richest 
territory. The official average is reduced by the low value of 
real propert}- inaccessible by land or water transportation or 




A Priceless Freight Yard in Chicago's Front Yard. 



through natural causes; the railway average is augmented by 
the invariable rule of locating roads in the fertile valleys where 
possible. The law of gravitation has caused the railways to 
build as near as could be upon the level, which they only leave 
to follow where man has made land more valuable by his pres- 



129 

ence and industry in large numbers. Only when the railway 
deserts the fields and enters towns and cities is this rule of 
selecting the most costly route, because it pays, abandoned and 
the right of way is purchased along the line of the least mone- 
tary resistance. Even here in some instances it pays to follow 
the most expensive routes. Vide the Pennsylvania's improve- 
ments in New York City. 

But it so happens that a majority of the leading railways of 
the United States secured their present rights of way in and 
^ through cities in days when land was comparatively cheap, and 
populous centers vied with each other in extending inducements 
to railways to secure the advantages of rail transportation. The 
difference between the conditions when the railways began 
obtaining right of way and today is shown in the table of density 
of population by states in 1830 and 1906. In the United States 
at large the density is over four times greater now than then, 
and outside of the original thirteen states it is ten times greater. 

Under all the circumstances it seems that six is a low estimate 
of the ratio to represent the excess of the value of land traversed 
by the railways over the average value of land in the United 
States at large. 

On top of this is the difference between the value of the 
land and what the railway has to pay for it. Here I have 
accepted the opinion of the Railroad Commission of Wisconsin, 
which is that the cost of railways "includes the value of the 
right of way, yards and terminals at two and one-half times 
the prices of adjacent real estate." 

Six times two and one-half, or fifteen, therefore, represents 
the difference between the value of railway right of way, and 
the average value of land throughout the United States. This 
applied to the figures as supplied by the Census Bureau and 
by the Interstate Comerce Commission provides the factors for 
the following table, which shows the density of population 1830 
and 1906; average value of land per acre; average value of a 
mile of right of way (12 acres) and value of railway right of 
way in the United States by states and territories: 



130 



Density of Population and Value of Right of Way per Mile 
IN the United States. 



Alabama 

Arizona 

Arkansas 

California 

Colorado 

Connecticut 

Delaware 

Florida 

Georgia 

Idaho 

Illinois 

Indian Territory. 

Indiana 

Iowa 



Kentucky 

Louisiana 

Maine 

Maryland -. 

Massachusetts.. . 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New Hampshire. 

New Jersey 

New Mexico .... 

New York 

North Carolina.. 
North Dakota... 

Ohio 

Oklahoma 

Oregon 

Pennsylvania . . . 
Rhode Island. . . 
South Carolina. . 
South Dakota. . . 

Tennessee 

Texas 

Utah 

Vermont 

Virginia 

Washington 

West Virginia... 

Wisconsin 

Wyoming 

United States. 



Deu.<5ity of 

population 

per square 

mile. 



1830 1906 



6.0 



0.6 



61.4 

39.2 

0.6 

8.8 



2.8 



9.6 



17.2 
4.7 
13.4 
45.3 
75.9 
0.2 



2.9 
2.1 



49.9 
43.0 



40.3 
15.2 



23.0 



30.0 
89.6 
19.3 



16.3 



18.7 



18.7 



6.4 



39 

1 

27 

11 

6 

209 

99 

11 

42 

2 

97 

17 

76 

40 

20 

58 

34 

24 

128 

379 

45 

25 

37 

49 

2 

14 

04 

48 

292 

2 

173 

42 

7 

109 

15 

5 

155 

460 

48 

6 

52 

13 

4 

38 

49 

9 

45 

41 

1 

28 



Average 

value per 

acre. 

1904 



i 13.61 

2.15 

11.82 

23.67 

9.61 

275 66 

106.90 

6.36 

14.98 

2.76 

152.58 

11.00 

76.64 

70.03 

21.69 

33.41 

16.84 

22.04 

142.16 

630 . 42 

54.89 

38.31 

9.42 

50 78 

3.52 

22.10 

1.74 

47.17 

395.15 

1.97 

300.08 

12.81 

8.27 

129.78 

14.49 

8.85 

229.71 

766.48 

12.95 

7.75 

20.90 

9.26 

4.92 

33.38 

26.18 

12.78 

23.70 

47.56 

2.11 

$32.75 



Average 
value. 


Total value 


right of 


Railway 


way per 


right of way. 


mile 






1,905 


2,448 


11,691,648 


384 


699,264 


2,127 


8,899,332 


4,800 


31,092,838 


1,729 


8,694,196 


49,618 


50,511,633 


19,242 


6,446,070 


1,144 


4,108,755 


2,696 


17,367,632 


496 


727,372 


27,464 


324,899,120 


1,980 


5,223,240 


13,795 


95,392,425 


12,605 


124,423,955 


3,904 


34,515,264 


6,007 


19,740,645 


3,031 


12,157,341 


3,967 


8,045,076 


25,588 


36,693,909 


113,475 


240,454,584 


9,880 


86,835,320 


6,895 


55,108,836 


1,695 


6,225,876 


9,140 


73,476,460 


633 


2,096,251 


3,478 


23,203,674 


313 


369,340 


8,580 


10,871,493 


71,127 


158,186,443 


354 


898,303 


54,014 


450,260,704 


2,305 


9,706,155 


1,488 


4,812,320 


^3,360 
#2,608 


266,815,240 


6,846,000 


1,593 


2,888,109 


41,347 


456,600,442 


137,966 


29,248,792 


2,331 


7,365,960 


1,395 


4,278,465 


3,762 


13,396,482 


1,666 


19,969,669 


885 


1,570,877 


6,008 


6,356,464 


4,712 


18.617,400 


2,300 


7,744,100 


4,266 


12,495,114 


8,560 


61,726,160 


379 


473,236 


$I3.3S 


$2,800,227,984 



1 



131 

The District of Columbia has been omitted from^ this signifi- 
cant table because it has no country area to reduce its urban 
density to a comparable basis. It is a noteworthy fact, however, 
that the Census Bureau estimates "the true value of real estate 
and improvements exclusive of railroads, and telegraph and 
telephone systems" in the District at $21,620 per acre. A mile 
of right of way in the District, therefore, would cost $259,560 
and the aggregate value of the 31 miles of right of way in Wash- 
ington, D. C, would be $8,046,360, to say nothing of railway 
area in yards and terminals. 

Lest the reader's credulity should be staggered by such fig- 
%ft-es as these, he should be informed that there is real estate 
in Chicago upon which a valuation of over $4,000,000 per acre 
has been put; that there is one terminal occupying property 
which, according to the assessed valuation of adjoining prop- 
erty, is worth over $1,000,000 an acre. There are several other 
terminals occupying land fully as valuable. Only last spring 
(1907) the Chicago and Northwestern, in connection with other 
purchases for its proposed passenger depot, paid $50,000 for a 
piece of property west of the river — that is outside of the busi- 
ness center — 80 x 80 feet, or at the rate of nearly $8 per square 
foot. At the average of 12 acres to the mile of right of way, 
this would approximate $4,224,000 per mile. 

The same company recently bought an irregular lot in the 
vicinity of its proposed new terminal, containing 28,000 square 
feet for $365,000 or $13 per square foot, which is at the rate 
of $572,000 per acre or $6,864,000 per mile of right of way 100 
feet wide. This is a trifle less than the price paid this summer 
for the site of the old Fifth Avenue hotel in New York City. 

Another road, the Chicago and Western Indiana, in order to 
extend its trackage, has recently paid $75,000 for a strip of land 
at 26th Street, Chicago, two miles from the Postoffice, contain- 
ing 17,125 square feet. This is equivalent to $4.40 per square 
foot or $193,600 per acre. Seventeen years ago the "Atchison, 
Topeka and Santa Fe in Chicago" sold 2.12 miles of terminal 
right of way in this territory for $8,000,000 cash. 

Other railways in Chicago have to pay equally high prices 
for land. It is not pretended that property so bought is worth 



132 



the price paid for it. But these purchases illustrate what the 
railways have to pay when they go into the market, as quietly 
as they can, to obtain land necessary to make extensions im- 
peratively demanded by the public. The Wisconsin Railroad 
Commission estimates the holdup to be one and one-half times 
above the value of the property. 

Speaking in round numbers, there are 800 miles of main line 
and 1,400 miles of auxiliary track within the corporate limits 
of Chicago. The main line alone represents 9,600 acres, or one- 
thirteenth of its total area. As the fair value of all real estate 
in Chicago, exclusive of improvements, is assessed at approxi- 
mately $1,500,000,000 it is clear that the value of railway right 
of way would amount to about $115,000,000, or about §144,000 
per mile of line. The value of land occupied by other tracks, 
terminals and }ards within the city limits is probably as much 
more. The aggregate would account for a valuation of nearly 
$20,000 per mile for all railway right of way in Illinois, leaving 
the rest of Cook County to account for the balance of $7,464 
as the State's quota is the foregoing table. 

What is true of Chicago and Illinois is true of every other 
state containing one or several large cities within its borders. 

Let me cite from the Census Bulletin the average value of 
"real property and improvements" per acre in counties in which 
cities larger than the national capital are located: 

Land 

„^-,„„„. vaiuc t-ci value per 
C0UN1\ square ., 

CRpitS, 

1900. 



New York, including Iving's, New York, Queen's and 

Richmond 

Cook (Chicago) 

Philadelphia 

St. Louis City 

Suffolk (Boston) 

Baltimore City 

Cuyahoga (Cleveland) 

Erie (Buffalo) 

San Francisco 

Hamilton (Cincinnati) 

Allegheny (Pittsburg) 

Orleans (New Orleans) 

Wayne (Detroit) 

Milwaukee ' 

District of Columbia, "Washington 



Area 
square 
miles. 


Land 

value per 

acre. 

1904. 


328 


$29,433 


993 


3,727 


130 


24,464 


61 


16,785 


51 


37,382 


30 


24,779 


472 


1,915 


1,040 


620 


47 


20,861 


405 


1,967 


758 


2,371 


197 


1,327 


626 


984 


228 


2,871 


60 


21,620 



$1,507 

985 

1,215 

1,020 

1,775 

842 

850 

883 

1,435 

1,196 

1,181 

559 

993 

1,048 

2.678 



133 

Moreover, these valuations are "exclusive of property held 
by railroads, street railways," etc. If the value per acre be 
multiplied by 12, the average number of acres in a mile of right 
of v^ay, and the product by 2-} to represent the premiums rail- 
ways have to pay for property, the reader can have some idea 
of the present cost of railway properties in large American 
cities. 

The genera] accuracy or understatement of the value of right 
of way in the table on page 128 is borne out by concrete exam- 
ples gathered from widely separated sources. 

In one case, $998 per mile was paid for right of way through 
four counties of a western state having an average population 
of 2.5 per square mile. This is a higher average than the table 
shows for Arizona with I inhabitant per square mile; Idaho 
with 2; Montana with 2; Nevada with .4; New Mexico with 2; 
Utah with 4 and Wyoming with i. 

In another case, $1,700 was the average paid per mile for 
crossing two rural counties of a western state having an aver- 
age of 24 persons per square mile, and $2,550 for crossing three 
other counties of the same state having an average of 27 per- 
sons per square mile. These were comparatively populous 
counties where the value of right of way was not affected by 
the presence of large cities. Bearing this fact in mind, they 
may be compared with Alabama, with its average of $2,448 
valuation per mile; Arkansas with $2,127; Colorado with $1,729; 
Florida with $1,144; Georgia with $2,696; Indian Territory 
with $1,980; Mississippi with $1,695 ; North Carolina with $2,305 ; 
North Dakota with $1,488; Oklahoma with $2,608; Oregon with 
$1^593 J South Carolina with $2,331; South Dakota with $1,395; 
and Texas with $1,666. 

In a third case, $18,950 per mile was the average paid for 
building across a county having a population of 112 to the 
square mile to the outskirts of a large city, which was excluded 
from the computation for obvious reasons. Had the road been 
compelled to build another mile into the city its bill for right 
of way would have been more than doubled, though spread 
over the whole length of its line across that particular county. 



134 

The average for this right of way is only exceeded by that for 
Connecticut, Delaware, Illinois, Maryland, Massachusetts, New 
Jersey, New York, Ohio, Pennsylvania and Rhode Island, in all 
of which the value of railway right of way is enhanced by the 
high price of urban property through or into which it runs. 

One Chicago road which figured that its "waylands" through 
the state of Illinois from 1897 to 1907 cost an average of $75 
per acre or $1,000 per mile of line was confronted with a very 
different condition when it faced the necessity for the purchase 
of a mile only 66 feet wide across a' 185 acre tract in the environs 
of Chicago. Here, while it had to pay only $12,000 for the land 
it needed, its bill for damage to the remainder of the tract was 
$18,500 and it had to purchase land for a new street laid out 
through the tract at as much more per acre as it paid for its 
own right of way, together with the cost of improving the 
same. So, that one particular mile of "waylands," 66 feet wide, 
finally stood on the company's purchase account at $53,050, 
where the 8 acres it actually bought was valued at only $1,500 
an acre. From this it can be imagined what the railways would 
have to pay for right of way into terminals in any of the great 
cities of the Union, were they called upon to do so today. 

The highest price paid by another Chicago road for right of 
way during the past ten years was $67,000 per mile. Here again 
the road was already in possession of the real coign of vantage 
of terminals in all the cities it reaches. 

In proceedings before the New Jersey State Board of Equali- 
zation of Taxes it was recently testified that the railroads owned 
600 acres of upland and 600 acres of submerged lands on the 
shore line of Hudson County which chiefly consists of Jersey 
City. Some of this property was assessed as high as $41,000 
per acre, when the average value of all real property in the 
county according to the Census Bureau was only $11,452. Even 
at the average estimate, railroad right of way in Jersey City 
would be worth at least $13,000,000. In 1904 Professor Henry C. 
Adams estimated the value of the Pennsylvania Railroad ferry 
property in Jersey City for the Census Bureau at $5,698,000. 

In further illustration of this point it may be mentioned that 



135 

the three terminals of the Atlanta, Birmingham and Atlantic 
Railroad at Atlanta, Birmingham and Brunswick, which have 
been secured, will cost approximately $7,500,000. 

In fact today the cost of access to the coveted centers of the 
great cities is so nearly prohibitory that only some such wealthy 
system as the f^ennsylvania has the means and daring to essay 
it. This prohibitive cost of terminals accounts for the fact that 
twenty-four roads focussing in Chicago possess only six pas- 
senger stations among them. This means that a majority of 
them gain entrance to the greatest railway center in the world 
over trackage rights or common ownership. It is impossible 
to capitalize these trackage rights, but it is evident that they 
represent a railway asset only second to the actual ownership 
of the terminals in the proprietary roads. 

Some idea, however, of the value of these rights at terminals 
may be formed from the fact that the New York, New Haven 
and Hartford Railroad this year paid $798,076 rental to the New 
York and Harlem road for twelve miles of trackage rights from 
Woodlawn to the Grand Central Station, under a lease made in 
perpetuity in 1848. Capitalized at 4 per cent, this represents 
nearly $20,000,000 or $1,662,000 per mile. When it is considered 
that the cost of the original New York and Harlem Railroad 
from the City Hall to White Plains (26 miles) was only $2,200,- 
000 sixty years ago the enormous advance in the value of ter- 
minal rights then acquired or donated to the early railways 
becomes apparent. 

A foreclosure sale valuation of $362,694 per mile was recently 
put on the property of the Wheeling Terminal Railway which 
owned a bridge and about 10 miles of terminal track at Wheel- 
ing, W. Va. 

Reverting to the statement of present cost filed by the North- 
ern Pacific Railroad with the Interstate Commerce Commission 
already referred to, it contained a summary of value of right of 
way and station grounds at large terminals fully confirming the 
foregoing estimates and deductions. This summary was as 
follows : 



136 



Value of Right of Way and Stations of Northern Pacific 

Railroad. 



LARGE TERMINALS 



Superior. 

Duluth 

Duluth Union Depot, . . . 

St. Paul 

Minneapolis 

Spokane. 

Tacoma 

Seattle • ■ • • 

Butte 

Everett 

Bellingham 

South Bend 

Aberdeen and Hauquaim. 



Total large terminals. 



Other right of way and station grounds 



Total . 



Value per acre 

Acres per mile of line . 
Value per mile of line. 



Acres. 



982.62 

600.91 

6.94 

676.97 

284.61 

422.31 

680.84 

461.03 

233.76 

124.68 

67.86 

35.63 

69.83 

4,637.99 



152,185.00 



$156,822.99 



Total value. 



$1,552,020 

5,155,204 

420,625 

9,574,177 

5,065,082 

7,240,293 

12,160,000 

30,167,000 

2,000,000 

374,040 

339,300 

249,419 

698,300 

$75,000,501 



31,889,589 



$106,890,090 

$681 

27.11 

$18,477 



This Statement indicates how far within the mark is my 
estimate of $14,000 as the average value of railway right of 
way per mile in the United States based on the assumption that 
^'waylands" 100 feet wide would cover not only main line but 
land for auxiliary tracks, sidings, yard tracks and station 
grounds. Applied to the whole country the averages for the 
Northern Pacific would support an estimate of $20,000 per mile, 
or more than $4,400,000,000 as the present value of the right of 
way and station grounds of the railways of the United States. 

Touching the justice of including the present value of their 
possessions in any estimate of the cost of reproducing the 
railways of the United States the Railroad Commission of Wis- 
consin, owing its appointment to Senator La Follette, has ad- 
mitted that: 

"It can perhaps be said that the owners of railroad property 
are entitled to any increase in the value of their property that 
may accrue from the progress of the territory in which it lies, 
and that they have as much right to the natural increments in 



137 

the physical value of their property as the owners of any other 
property.'" 

If the Comniission had been entirely just it would have gone 
further and said there was no "natural increment" about the in- 
crease in the value of railway property to which they have not 
contributed by far the greater share. Without the railways 
built in Wisconsin since 1850 the increase of the wealth of Sena- 
tor La Follette's state from $42,056,595 in that year to $2,838,- 
678,239, or over 6,650 per cent, would have been as impossible 
as, looking backwards, it seems incredible. 

There has been no ''unearned increment" about the advance 
in the value of the physical property of tlie railways. 

It is needless in such a work as this to more than remind 
the reader that the increase in land values has not been con- 
fined to the cities, but has its counterpart throughout the coun- 
try. One example will suffice to illustrate this point. The late 
William (Lord) Scully, of absentee landlord fame, bought farm 
lands in Illinois in 1851 from the government at $1.25 per acre 
which he rented in 1900 at $3 per acre per annum. 



138 



IX 
COMMERCIAL AND MARKET VALUATION 

In 1905 the Statistician of the Interstate Commerce Commis- 
sion, Professor Henry C. Adams, as the authorized agent of the 
Census Bureau, reported what has been currently known as 
the "Commercial Valuation of Railway Operating Property in 
the United States." This report, which was made as "one step 
in the determination of the wealth of the nation," placed the 
value of railway operating property, computed for the year 
1904, at 

$11,244,852,000. 

This valuation was arrived at by capitalizing what was called 
"their true net earnings" at a rate arrived at by an elaborated 
formula based on "the market price of their securities." 

In his computation for the Census Bureau, Professor Adams 
very wisely freed himself from all the "entangling alliances" 
and duplications arising from including "non-operating" with 
operating railways in his statistical work for the Interstate 
Commerce Commission. By adopting the "operating railway 
systems as the units of appraisal," as expressed by the Director 
of the Census, he was enabled to arrive at a result the value of 
which depends solely on the acceptance of two elusive factors, 
viz., "true net earnings," and the rate determined on for their 
capitalization. 

Professor Adams arrived at the former by subtracting reported 
operating expenses, less such sums as were spent for permanent 
improvements and charged to operating expenses, from gross 
earnings from operation. From the remainder he subtracted 
the amount of taxes paid. The final balance was accepted as 
the true profit from operation. 

This afforded a very simple formula, but an attempt was made 
to equalize the result by taking the average of profits from 
operation of certain roads for five years, and of others for three, 



139 



and estimating the value of others on mileage, gross earn- 
ings, operating expenses, etc. 

With the aid of Professor B. H. Meyer, of the Railroad Com- 
mission of Wisconsin, Professor Adams arrived at 4.256 per 
cent, as the exact rate for the capitalization of the "true net 
earnings" as previously ascertained. 

By supplementing these methods with others to meet iso- 
lated cases. Professor Adams and his assistants compiled the 
following statement of the commercial value of the railways of 
the United States for the year 1904 (Vide Census Bulletin 21, 
page 9) : 



Valuation. 



Per cent of 
total. 



Capitalization of net earnings: 

(a) Rate based on market quotation 

(b) Rate based on formulae 

Operated mileage 

Gross earnings 

Operating expenses 

Cost of construction, etc 

Some or all of debt 

Appraisal for taxation 

Income from lease 

Actual sale of entire property 

Total 



$10,385, 

705, 

87, 

11. 

2, 

.^, 

22, 

1, 

22, 



264,000 
418,000 
235,000 
288,000 
828,000 
755,000 
871.000 
816,000 
318,000 
59,000 



$11,244,852,000 



92.35 
6.27 
.78 
.10 
.03 
.05 
.20 
.02 
.20 



100.00 



As this valuation rests on "the capitalization of the average 
net earnings for a period of five years preceding June 30, 1904," 
it is obviously a valuation for 1901-2 rather than for 1904. As 
the net earnings of the railways from operation in 1904 were 
$42,585,342 greater than the average for the five year period 
preceding, it is equally obvious that using the rate determined 
on, viz., 4.256 per cent., the capitalized value of the railways 
would have been almost exactly $1,000,000,000 more than as 
estimated on the period named. 

Now if the method of valuation of Professors Adams and 
Meyer be applied to the earnings for the year ending June 30, 
1905, and estimating the cost of permanent improvements 
charged to operating expense, we obtain the following: 



140 



Commercial Value, 1905. 



Gross earnings from operation 

Expenses of operation 

Less permanent improvements charged to operating expen- 
pense 



Income from operation. 
Less taxes 



"True net earnings". . . 
Capitalized at 4.256% = 



$1,390,602,152 
20,000,000 



$2,082,482,406 



1,370,602,152 



$ 711,880,264 
63.474.679 



$ 648,405,575 



$15,235,093,400 



If the same methods were applied to the railway income for 
the year ending June 30, 1906, the results would be still more 
surprising, as the following statement shows: 



Commercial Value, 1906. 



Gross earnings from operation 

Expenses of operation 

Less permanent improvements charged to operating expen.se 



Income from operation. 
Less taxes 



"True net earnings". . . . 
Capitalized at 4.256% = , 



$1,536,877,271 
20,000,000 



$2,325,765,167 
1,516,877,271 



$808,887,8£6 
74,785,615 

$734,101,281 
$17,248,620,000 



If the formula adopted by Professors Adams and Meyer and 
accepted by the Census Bureau is entitled to credit, the com- 
mercial value of the railways of the United States on June 30, 
1906, was approximately $17,248,620,000. 

Even if the rate 4.256 be applied to the average ''true net 
earnings" of the last period of five years, 1902 to 1906, inclusive, 
the commercial value according to the official formula would 
be approximately $14,840,000,000. This of course is a mean 
commercial value for the term of years and not at the end of 
the term when the "true net earnings" were fully $232,000,000 
more than at the beginning. 

When the returns for 1907 are all in it will be found that 
the commercial value of the railways of the United States ac- 
cording to the formula adopted by the Census Bureau is over 
$19,000,000,000. 

But it must be obvious to the most casual student that this 



141 

so-called commercial valuation of the railways is merely a cap- 
italization of the earning capacity of the railways, which must 
rise and fall with the prosperity of the public they serve. In 
no way does it go to establish "the value of the transportation 
plant employed in the service of that public." 

The sole purpose for which a separate valuation of the physical 
property of the railways is sought by the Interstate Commerce 
Commission is that it may be used in "determining: the reason- 
ableness or unreasonableness of rates." As this commercial 
valuation depends absolutely on income arising from the rates, 
even Professor Adams admits "that such a valuation cannot be 
used" for that purpose. 

That it could be and would be used as a basis of values in 
case the Government were considering the purchase of railways 
is indicated by the procedure adopted in Germany and Japan. 

Market Value of the Railways. 

Little need be said of the value of the railways of the United 
States as reflected in daily market quotations. These are affected 
by influences so entirely independent of the value of the rail- 
ways, and often so independent even of their income earning 
capacity, as to be practically worthless as a measure of value. 

In 1900 when the net capital of the railways of the United 
States was $9,547,984,611, the Interstate Commerce Commission 
made a report of their market value to the Senate as follows: 



Ascertainable market value. . . 
Not ascertainable (par value) . 



Total. 



$8,351,103,523 
812,066,859 



$9,163,170,382 



In short, in 1900 the market value of railway securities was 
96 per cent, of their net capitalization. In- 1905 their net cap- 
italization had risen to $11,167,105,992 and on a basis of 96 
per cent, their market value would have been approximately 
$10,720,420,000. 

But between 1900 and 1905 the quoted market value of rail- 
way securitie^i had advanced an average of 20 per cent^ making 
their market value two years ago approximately $12,864,500,- 
000. 



142 

In 1906 there was a further increase both in the capitalization 
and market value of railway securities, so by the end of last 
year it is safe to estimate the latter at $13,000,000,000. 

Then came the great decline of last March which in the 
course of a few weeks demonstrated the utter worthlessness of 
market prices as a measure of the values of railway property. 
With every railway in the country in better physical condition 
than ever before in its history; with their facilities taxed to 
the utmost by unprecedented traffic; with gross earnings sur- 
passing all records and net earnings showing a healthy increase ; 
with the business of the republic betraying no signs of a reces- 
sion — in the face of the most favorable conditions — so far as 
railway earnings were concerned — the market value of their 
securities in six months showed a shrinkage on June 30, 1907, 
of no less than $2,000,000,000. 

That this decline of two billions is not a mere estimate is 
proved by the fact that the shares of 54 companies having an 
aggregate capital stock of $4,481,400,000 showed an actual 
shrinkage of $1,361,505,000 in market value in the first six 
months of 1907. This is equivalent to a decline of over 30 per 
cent. If the remainder of the capital stock suffered a like de- 
cline it would amount to no less than $1,966,000,000 for all the 
railways. As there was a shrinkage of over 6 per cent, in the 
market values of railway bonds aggregating at least $360,000,000, 
the total decline in the market values of railway securities must 
have been fully $2,300,000,000. 

Any measure of values liable to a shrinkage of from 15 
to 20 per cent, in the face of an increase in the physical, com- 
mercial, taxable and earning value of the railways must be 
rejected as valueless in ascertaining their true valuation. 

Furthermore, in 1900 when the Interstate Commerce Com- 
mission reported its estimate of $9,163,170,382 as the market 
value of all the railways to the United States Senate, it reported 
the net interest and dividends paid by the railways as fol- 
lows: 



143 



Net interest on funded debt.. 
Interest on current liabilities. 
Net dividends 



Total $366,535,586 



$242,998,285 

4,912,892 

118,624,409 



This sum is an inappreciable shade over 4 per cent, on the 
market value as reported by the Commission. 

In 1905 and 1906 the railways reported the payment of inter- 
est and dividends under the same heads as follows: 





1905 
(Full Returns). 


1906 
(94% Returns). 




$294,803,884 

11,451,400 

188,175,151 


$252,572,777 
13 819 287 


Interest on current liabilities 


Net dividends 


221,507,203 




Total 


$494,430,435 


$487,899,267 'j 





Capitalized at 4 per cent., the rate fixed in the Commission's 
report in 1900 the net interest and dividends paid in 1905 would 
justify a market valuation for that year of approximately $12,- 
360,000,000 and in 1906 for 94 per cent, of the roads of $12,197,- 
000,000. 

But as market values as revealed in daily stock quotations 
are influenced as much by the price of money in London as by 
the earnings or true value of American railways such estimates 
as these possess little more than a speculative interest, except 
as they afford cumulative testimony to the point that American 
railways are not over capitalized. 

If the prevailing rate of interest were ever to go to 8 per 
cent., where it was when many of our railways were projected, 
the market value of American railways would shrink nearly. 
50 per cent., but that would not affect their cost, true value, or 
capitalization. It would only make it more difficult for them 
to provide adequate service for the American people. 

The difficulty with the railways today, then, is not over- 
capitalization, but where to get more capital to enable them to 
keep pace with the business demands made upon them. With 
Boston, New York City and New York State failing to float 
4 per cent, bonds at par, and the railways forbidden to go near 
the "water,'' the prospect for necessary improvements and ex- 
tensions is very dry indeed. 



144 



VALUATION AS ESTABLISHED BY TAXATION 

In the year 1904 the "estimated true value of all property" 
in the United States as set forth by the Director of the Census 
was 

$107,104,192,410. 

In this total was included for "Railroads and their Equip- 
ment" exclusive of "railroads which in certain states are classed 
as real property" the sum of 

$11,244,752,000, 

being just $100,000 short of the commercial value of railway 
operating property compiled for the Census Bureau by Profes- 
sor Henry C. Adams, the statistician of the Interstate Commerce 
Commission. 

For 1904 the Census Bureau found that the "assessed valua- 
tion of all property (real and personal) subject to ad valorem 
taxation" in tlie United States was $38,963,381,120, or only 
36.4 per cent, of the estimated true value of all property in the 
country as given above. (See diagram next page.) 

If the railway property included in the major total had been 
assessed on the same basis as all property, its assessed valua- 
tion, exclusive of that classed as real property in certam states, 
would have been $4,095,089,7.28. 

Now it so happens that Professor Adams in submitting his 
report on the commercial value of the railways for the Census 
Bureau in 1904 presented a table which he called "A compari- 
son between the Actual Commercial Value of Railway prop- 
erty devoted to transportation and the latest reported values of 
railway property assessed for purposes of taxation in various 
states and territories." For some unexplained reason no less 
than seven states, including three of the most important, were 
omitted entirely from the table. Incomplete as it was this table 
showed that the railway property assessed for taxation amounted 



145 



Diagram and Table. 

Estimated True Value of All Property, and Assessed Valuation of Portion 
Subject to Ad Valorem Taxation for Each State and Territory, 1904; 
vide "Wealth, Debt and Taxation," Official Reports of the Census Office, 
1907, pages 28 and 41. 



HUNDREDS OF MILLIONS OF DOLLARS 
90 



MASSACHUSETTS 

CALIFORNIA 

IOWA 



NEBRASKA 

KENTUCKY 

MARYtANO 

CONNECTIOUT 

VIRQINIA 

COLORADO 

OEOROIA 

TENNESSEE 




D4ST.OF COLUMBIA 

LOUISIANA 

ALABAMA 

OREQON 

NORTH CAROLINA 

WEST vmOINIA 

ARKANSAS 

RHODE ISLAND 



'north DAKOTA 
MIS3ISSI>-PI 
SOUTH DAKOTA 



SOUTH CAROLINA 



WYOMINO 
ARIZONA 
DELAWARS . 
NEVADA 



Estimated true 

value of all 

property. 



Assessed valuation 

of portion subject 

to taxation. 



United States.... 

New York 

Pennsylvania. . . . 

Illinois 

Ohio 

Massachusetts.. . . 

California 

Iowa 

Missouri 

Minnesota 

Michigan 

New Jersey 

Indiana. 

Wisconsin 

Texas 

Kansas 

Nebraska 

Kentucky 

Marjland 

Connecticut 

Virginia 

Colorado 

Georgia 

Tennessee 

Washington 

Dist. of Columbia 

Louisiana 

Alabama 

Oregon 

North Carolina . . 
West Viginia .... 

Arkansas 

Rhode Island, . . . 

Maine 

Montana 

North Dakota . . 

Mississippi 

South Dakota". . . 

Oklahoma 

South Carolina. . . 
New Hampshire . 

Utah 

Indian Territory 

Florida 

Vermont 

Idaho 

New Mexico 

Wyoming 

Arizona 

Delaware 

Nevada 



Estimated True 

Value of all 
Property, 1904. 



$107,104,192,410 

14,769,042,207 

11,473,620,306 

8,816,556,191 

5,946,969,466 

4,956,578,913 

4,115,491,106 
4,048,516,076 
3,759,597,451 
3,343,722,076 
3,282,419,117 

3,235,619,973 
3,105,781,739 
3,838,678,239 
2,836,322,003 
2,253,224,243 

2,009,563,633 
1,527,486,230 
1,511,488,172 
1,414,635,063 
1,287,970,180 

1,207,542,107 
1,167,445,671 
1,104,223,979 
1,051,671,432 
1,040,383,173 

1,032,229,006 
965,014,261 
852,053,232 
842,072,218 
840,000,149 

803,907,972 
799,349,601 
775,622,722 
746,311,213 
735,802,909 

688,249,022 
679,840,939 
636,013,700 
585,853,222 
516,789,204 

487,768,615 
459,021,355 
431,409,200 
360,330,582 
342,871,863 

332,262,650 
329,572,241 
306,302,305 
230,260,976 
220,734,507 



Assessed Valuation of 
all Property subject to 
Ad Valorem Taxation. 



$ 38,963,381,120 

7,738,165,639 
3,676,796,517 
1,087,844,331 
2,113,806,168 
3,251,793,834 

1,548,698,785 
642,445,336 

1,380,246,430 
857,796,773 

1,728,712,850 

1,055,669,790 
1,532,896,640 
1,359,098,346 
1,082,781,329 
372,673,858 

294,779,245 
700,881,240 
680,743,794 
690,896,142 
537,032,099 

342,170,703 
530,894,755 
428,715,337 
298,845,507 
235,233,101 

351,018,941 
326,173,663 
188,058.281 
442,418,677 
275,275,936 

249,779,108 
444,144,066 
366,514,014 
201,748,063 
159,605,057 

269,490,396 
214,239,028 
90,609,073 
209,591,593 
274,902,447 

132,756,900 



117,064,840 

168,011,776 

20,613,661 

42,565,000 
46,696,949 
45,069,545 
71,145,422 
36,270,135 



Per 

Cent. 



36.4 

52.4 
32.0 
12.3 
35.5 
65.6 

37.6 
15.9 
36.7 
25.7 
52.7 

32.6 
49.4 
47.8 
38.2 
16.5 

14.7 
45.9 
45.0 

48.8 
41.7 

28.3 
44.5 
38.8 
28.4 
22.6 

34.0 
33.8 
22.1 
52.5 
32.8 

31.1 
55.6 
47.3 
27.0 
21.7 

39.2 
31.5 
14.2 
35.8 
53.2 

27.2 



27.1 
46.6 
20.6 

12.8 
14.2 
14.7 
30.9 
16.4 



146 



to $3,027,144,820. It has been computed from such figures as 
are available that the assessed values of the railway property 
in the omitted states compared with their Commercial Value as 
found by Professor Adams were as follows: 



Estimated 

Assessed Value 

1904. 



Commercial 
Value 
1904. 



Delaware 

Maine 

Maryland 

Massachusetts. . . 

Minnesota 

Oregon; 

Pennsylvania . . . , 
Indian Territory. 



$10,153,500 
49,038,900 
57,919,200 

307,076,600 

301,567,600 
40,336,700 

517,101,312 
6,662,900 



$ 17,285,000 

80,146,000 

132,342,000 

250,052,000 

466,734,000 

75,661,000 

1,420,608,000 

79,405,000 



Total. 



$1,289,856,712 



$2,522,233,000 



This enables us to arrive at the following approximation of 
the assessed valuation of the railways of the United States : 



valuation as found by Professor Adams, 
value for States omitted 



$3,027,144,820 
1,289,856,712 



$4,317,001,532 



If the proportion of 36.4 per cent, between assessed value and 
true value of all property in the United States be correct, this 
table approaches a demonstration that the true value of all 
railway property of the United States in 1904 was 

$11,841,589,000. 

That this estimate is not far astray is proved by the fact that 
in 1905, the year when taxes were paid on this assessment, the 
railways of the United States paid $63,324,551 in taxes, or 
slightly over 53 cents on the $100, which is precisely the tax 
rate applied to the true value in Texas as found by the Census 
Bureau. 

That it should approach so nearly to their value in 1904 for 
commercial purposes, as estimated by the official statistician, 
is strongly corroborative that their actual value is in excess 
of either aggregate. It is safe to say that there is not another 
great industry in the country, where the return on invested 



147 

capital is so small, which pays such a large proportion of its 
net earnings in taxes, amounting in the days of its greatest 
prosperity to over 12 per cent. 

Moreover these figures of value of railway property assessed 
for the purposes of taxation are exclusive of the almost price- 
less railroad property assessed in New York and New Jersey 
as real estate. As the New York Central alone in 1906 paid 
$2,924,593 for taxes on real estate out of a total of $4,126,984, 
it is evident that the assessed value of railway real estate in 
New York must have been at least $300,000,000 and last year's 
railway taxes in New Jersey show that railway real estate in 
that state must have had an assessed value of over $75,000,000. 
As the assessed value of all property in New York is 52.4 per 
cent, of the true value and in New Jersey 32.6 per cent., these 
two items alone would add over $800,000,000 to the value of 
railway property as established on the basis of taxable values 
in the Unitea States, making an aggregate total of 

$12,641,589,000. 

In order that the student may appreciate the varied con- 
ditions as to taxation which confront the railways in the various 
states of the Union, the following table presents the facts as 
to their mileage, assessed value for taxation, total taxes paid 
and per mile in the several states from the latest official re- 
turns, except as noted, where they were computed: 



148 



Railway Assessment and Taxes. 



Alabama 

Arkansas 

California 

Colorado 

Connecticut 

Delaware 

Florida 

Georgia 

Idaho 

Illinois 

Ipdiana 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New Hampshire 

New Jersey 

New York 

North CaroHua 

North Dakota 

Ohio 

Oregon 

Pennsylvania 

Rhode Island 

South Carolina 

South Dakota 

Tennessee 

Texas 

Utah 

Vermont 

Virginia 

Washington 

West Virginia 

Wisconsin 

Wyoming 

Arizona 

District of Columbia. 
Indian Territory. . . . 

New Mexico 

Oklahoma 



Mileage 
1905. 



United States 

Assessed as real estate in N 
Assessed as real estate in N 

Total assessed value. . 



4,776 
4,183 
6,477 
5,027 
1,018 
335 
3,590 
6,442 
1,465 

11,830 
6,915 
9,871 
8,841 
3,286 
4,011 
2,028 
1,434 
2,119 
8,789 
7,992 
3,672 
8,039 
3,309 
5,833 
1,180 
1,287 
2,224 
8,336 
4,210 
3,233 
9,259 
1,813 

11,043 

212 

3,160 

3,067 

3,561 

11,983 
1,774 
1,058 
3,9.50 
3,367 
2,929 
7,211 
1,247 
1,821 
32 
2,638 
2,534 
2,625 



217,017 
ew York . 
ew Jersey 



Assessed for 

taxation 

1904. 



$53,926,026 

34,709,623 

92,378,550 

49,492,135 

120,493,648 

10,153,500 

21,817,478 

63,105,810 

10,115,378 

425,709,055 

165,863,367 

67,535,160 

60,093,534 

77,658.040 

29,044,195 

49,038,900 

57,919,200 

307,076,600 

196,795,000 

301,567,600 

29,847,640 

97,916,869 

36,759,827 

46,082,853 

13,778,049 

22,625,000 

'231,655,525 

229,582,064 

69,480,974 

22,160,304 

133,858,945 

40,336,700 

517,101,312 

15,832,003 

29,467,716 

14,354,930 

58,536,566 

95,209,785 

20,682,461 

27,344,020 

63,269,623 

26,066,949 

28,771,358 

218.024,900 

7,498,232 

6,667,349 

2.486,024 

6,662,900 

8,511,538 

11.936,317 



$4,317,001,532 

300,000,000 

75,000,000 



Taxes paid 
1905. 



$4,692,001,532 



$833,121 

789,442 

1,919,125 

1,374,077 

1,281,751 

101,535 

469,938 

831,436 

375,678 

5.186,887 

3,096,288 

2,089,289 

2,398,209 

1,180,298 

795,874 

490,389 

579,192 

3,070,766 

2,680,851 

2,189,953 

648,417 

1,594,094 

765,322 

1,296,686 

282,697 

395,328 

1,852,786 

5,066,316 

642,466 

805,756 

4,297,601 

403,367 

3,586,872 

222,233 

■ 495,750 

325,306 

832,869 

1,274,694 

461,885 

156,850 

1,219,316 

826,722 

599,804 

2,252,303 

200,491 

230,792 

41,966 

33,329 

278,618 

453,816 



$63,324,551 



Per cent 
of tax on 



value. 



1.544 

2.274 

2.077 

2.776 

1.063 

1.000 

2.154 

1.317 

3.713 

1.218 

1.866 

3.631 

3.997 

1.519 

2.740 

1.000 

1.000 

1.000 

1.362 

.726 

2.226 

1.628 

2.081 

2.813 

2.051 

1.740 

.799 

2.206 

.924 

3.636 

3.210 

1.000 

.694 

,403 

.682 

.266 

,422 

,338 

,991 

.573 

1.927 

3.171 

1 . 751 

1.037 

2.673 

3.476 

1.285 

.500 

3.273 

3.802 



Tax rate 
per $100 of 

estimated 
true value. 



1.467 



$0.56 
0.63 
0.74 
1.00 
0.61 
0.60 
0.68 
0.78 
0.61 
0.67 
0.98 
0.61 
0.71 
0.72 
0.92 
0.94 
0.76 
1.06 
0.79 
0.61 
0.67 
0.62 
• 0.60 
0.71 
0.30 
0.84 
0.70 
0.97 
0.£2 
0.66 
0.87 
0.66 
0.66 
0.81 
0.70 
0.70 
0.74 
0.53 
0.63 
0.56 
0.58 
0.98 
0.73 
0.78 
.35 
57 
.34 
,07 
,47 



0.56 



$0.74 



149 

As all property in the United States is assessed on an average 
of 36.4 per cent, of its estimated true value (Table 16, Census 
Report, Wealth, Debt and Taxation 1907) this assessed value 
of $4,692,001,532 represents an estimated true value of approxi- 
mately 

$12,890,000,000. 

The variation of $248,411,000 between this result and that 
arrived at on page 147 is due to the disturbance of the ratio be- 
tween the assessed value and the "estimated true value" by the 
introduction of estimates for the states omitted in the Census 
table of assessed values and the estimates of real estate values 
excluded from the assessed values in New York and New 
Jersey. 

Whichever figure is accepted establishes the fact, that on 
the basis of assessed valuations and taxes compared with their 
relation to the official estimated true value of all property in 
the United States, the value of American railways for taxation 
purposes is greater than their net capitalization of 

$11,671,940,649. 

An anatysis of the last two columns in the above table demon- 
strates that the rate paid by the railways on the assessed value 
of their property is from i to 7 times greater than the tax rate 
paid per $ico of estimated true value of all property in the 
United States. In the country at large it is twice as great. 

Texas affords a striking illustration of the difference between 
the tax levied on railways and the rate paid on general prop- 
erty. Although the taxes levied on the railways of Texas were 
only 1.338 per cent, on their assessed value, this was 2.53 times 
more than the average rate levied on private property through- 
out the state. In 1906 the Texas railways were assessed at $10,- 
907 per mile for purposes of taxation and the taxes actually paid 
by them amounted to $1,594,825 or 1.212 on their assessed value 
which is 2.3 times more than the rate levied on the true value 
of all property in Texas. This would make it appear that their 
true value for taxation purposes was $25,086 per mile, or $8,555 
more than the valuation put on them by the State Railroad Com- 
mission. 



150 

According to the assessors, the value of Texas railways in- 
creased $2,456 per mile between 1905 and 1906, while the Com- 
mission could only find that their value had increased $11 per 
mile, which shows the difference whether the appraiser is seek- 
ing to increase the revenues of the state or for excuse to reduce 
the revenues of the railways. 

In passing, it is worthy of note that while the net capitaliza- 
tion of the railways of the United States has increased only 28.7 
per cent, during the last ten years their taxes have increased over 
87 per cent. 

The railways of Minnesota, according to the State Commis- 
sion, paid $3,015,676 taxes in 1905 against $1,911,707 in 1904. 

Where the railways of New Jersey are credited in the above 
table with having paid only $1,852,786 taxes in 1904, the total 
tax upon them for state uses in 1906 was $3,509,371. 

With these examples of what consideration the railways are 
receiving at the hands of taxing bodies, I leave this phase of 
the subject. 



151 



XII 
RECEIVERSHIPS AND THE RAILWAYS 

Among the many things laid at the door of alleged over- 
capitalization of American railways are the periodic succession 
of receiverships that have seared their history with the brand 
of financial tribulation. Even the fairest writers on railway 
economics have not escaped this pitfall dug by political agi- 
tators for the delusion of the unwary. Professor Emory R. 
Johnson in his "American Railway Transportation," one of the 
ablest and most instructive of recent works on the subject, 
falls into the popular error, when he sa3^s, "The large number of 
railroad receiverships in the United States has been the result 
of several causes, of which the first and most potent has been 
over-capitalization." 

As a matter of fact, there is not the slightest evidence to 
sustain such a sweeping assertion. That over-capitalization has 
in a few flagrant cases contributed to forcing companies into 
the hands of receivers may be admitted. But the four "most 
potent" causes of railroad receiverships in the United States 
have been faulty location, over-construction, over-competition 
and successive business depressions. 

This is not the assertion of a theory but of conditions sus- 
ceptible of proof. Where roads have been originally located 
correctly with good judgment where needed, and where the 
immediate prospects or far-seeing prescience justified large ex- 
penditures, receiverships have been the rare exceptions. 

In discussing this phase of the subject one salient fact should 
never be lost sight of — only the capitalization represented by 
bonds has any bearing on the question of receivership. It is only 
when the security of the bondholder is imperilled that the pro- 
tection of the courts is invoked. 



152 



The Halt of 1837. 

The first financial storm the railways had to meet was that 
of 1837, when the initial cost of construction of the early roads 
had imposed a heavy burden upon the capital and industry of 
the country. The result was, as we read in Poor's Manual, 
that in many of the states, particularly in the Western and 
Southern, large sums were expended upon lines which were 
wholly abandoned. Charters granted and work begun in 1834- 
1836 were held in abeyance, not to be revived or resumed until 
along in the early forties, after the effect of the revulsion began 
to wear off. 

The Galena and Chicago Union, the forerunner of the Chi- 
cago and Northwestern, affords an illustration of what hap- 
pened to the railways of the United States at that time. On 
January 10, 1836, it received a special charter from the legis- 
lature of Illinois to build a railroad out into the prairie country 
toward the Mississippi. An amended charter was granted in 
1837, under which a short preliminary survey was made and 
940 acres of wood land nine miles west of Chicago was se- 
cured as a source of fuel supply. ''Then," says the historian, 
''the financial 'panic' beginning in the summer of 1837 put a 
stop to this and many other railroad projects, not only in Illi- 
nois but all over the United States." The actual construction 
of the Galena and Chicago Union was not resumed until 1847. 

It was the financial upheaval of 1837 that induced the state 
of Michigan to take over the construction of the Detroit and 
St. Joseph railroad chartered in 1836 (the original Michigan 
Central) and the Erie and Kalamazoo Railroad chartered in 1833 
(now a part of the Lake Shore and Michigan Southern Rail- 
way). The former company was capitalized at $2,000,000, but 
no work had been done upon it when the state of Michigan ap- 
pointed commissioners to complete the construction. Appro- 
priations were made for this purpose in 1838, 1839, 1843 ^^^ 
1844, and in 1846 the road was completed 144 miles to Kala- 
mazoo. 

A report to the legislature when work had proceeded no 



153 

miles to Marshall gives the following details respecting this 
piece of forced government ownership: 

Cost of Michigan Central and Michigan Southern 
TO December 31, 1844. 



Central (110 miles completed) 


$1 842 308 


Southern (initial point at Monroe) 


936 295 






10% added for interest during construction and other incidental expenses 

Palmj'ra and Jackson Railroad, cost including interest 


$2,778,603 

277,860 

30 000 


Locomotives and cars on Central Railroad $110,000 




Ditto on Southern Railroad 51,000 


161,000 


Total 


$3 257 963 







Governor Barry reported in favor of selling these works, 
which were subsequently sold to Boston capitalists for $2,- 
000,000 for the Central and $500,000 for the Southern. They 
were paid for in state bonds which the shrewd New Englanders 
had bought at 70 cents on the dollar, thereby obtaining for 
$1,750,000 property which had cost at least $3,500,000. All told, 
Michigan spent $4,500,000 and 305,000 acres of public land on 
her railroads, and they were worth the expenditure, although 
Boston financiers bought them in at what would now be called 
"bargain counter" prices. The purchasers had to go into the 
markets to raise additional funds for their rehabilitation, com- 
pletion, extension and equipment. 

The Panic of 1857. 

After the country recovered from the effects of the "financial 
catastrophe" of 1837, the extension of railways into every quar- 
ter of the West proceeded with unprecedented rapidity until 
checked temporarily by another panic; when, again we read 
in the histories, "A great financial revulsion came in 1857 ^^^ 
at once put a stop to further construction of this and many 
other lines of railroad and this company became bankrupt." 
The road here referred to was the Chicago, St. Paul & Fond 
du Lac Railroad, all of whose property, franchises and rights 
were purchased at foreclosure sale by the newly organized Chi- 
cago and Northwestern Railway for $10,849,938 in stocks and 
bonds of the purchasing company. _ 



154 



A like process went on all over the country. The financially 
sound companies — i. e., those which had not been over-built 
into unproductive territory — buying in the property of the 
bankrupt companies below cost of construction, but almost 
never below the face of the funded debt. 

The Receiverships of 1873. 

Scarcely had the railways recovered from the business de- 
pression of 1857, when the civil war brought nearly all indus- 
trial progress to a standstill and by its legacy of inflated cur- 
rency prepared the way for the financial convulsion of 1873. 
Between i860 and 1865 only 3,303 miles of railway were built 
in the United States, but with the return of peace in the latter 
year construction was resumed with feverish activity. The 
mileage jumped from 35,085 miles in 1865 to 70,651 in 1873 — 
that is, it more than doubled in eight years. 

In i860 there were 1026 inhabitants to each mile of railway; 
in 1870 the proportion was only 730, and by 1873 it bad fallen 
to 590 per mile of road. As experience at that stage in the de- 
velopment of railway economies had demonstrated that "to en- 
able railroads to be operated at a profit a population of at least 
850 to a mile of railroad is necessary in this country" (Poor's 
Manual 1877-1878), the over building of railways had passed 
below the margin of safety, in 1870, and was far below it in 
1873, when the country entered upon that period of depression 
from which it did not emerge until specie payment was re- 
sumed and all business was once more placed on a sound money 
basis. 

No fine-drawn theory is needed to explain the railway re- 
ceiverships of 1874 to 1877. It is told in unmistakable language 
in the following table of earnings — gross and per mile. 





Gross Earnings. 


Per Mile. 


1872 . 


$465,241,055 
526,419,935 
520,466,016 
503,065,505 
495,257,959 
472,909,272 


$8,116] 1 
7,933 1 
7,513 


1873 


1874 


1875 


7,011 


1876 


6,765 


1877 . . .... 


6,381 







155 

The startling decrease in gross earnings per mile between 
1872 and 1877 shows the combined effect of the business de- 
pression and over-construction. In spite of a slight increase 
in gross earnings, it will be perceived that there was a decrease 
of more than 20 per cent, in earnings per mile. The large re- 
ceipts per mile previous to 1871 had furnished the stimulus 
for the over-construction which swept scores of railways into 
bankruptcy during the business stagnation which waited on the 
restoration of our currency to a healthy basis. 

In passing, it is worthy of note that twenty years had to 
elapse before (in 1901) the gross receipts of the railways of the 
United States reached the level per mile from which they fell 
as shown, in the foregoing table. 

An examination of the reports of the principal systems which 
went into the hands of receivers in 1874 discloses the fact that 
their difficulties proceeded from one of two causes — either they 
were under construction involving the raising of large sums 
before they had begun to earn sufficient income to pay operat- 
ing expenses; or their income was so depleted by the reduction 
of rates below a profitable basis that the cost of operation ab- 
sorbed too large a proportion of their earnings. 

The Northern Pacific, which was being built toward the sun- 
set, is an example of the former class. It operated 555 miles 
to practically nowhere, and had issued $30,780,940 bonds on 
which it had realized only $22,766,923. It was paying an aver- 
age of 7-3/10 per cent, on its debt and its earnings from opera- 
tion in 1874 were only $365,343, or $22,876 more than operat- 
ing expenses, or about one-tenth as much as the interest on its 
funded debt. It was only through the process of a receiver- 
ship and a reorganization, in which the bondholders took pre- 
ferred stock for their principal and interest, that the work of 
constructing this great road was continued. 

The Erie, that road prolific in lessons of railroad enterprise 
and financiering, affords a striking example of the second class. 
But there is no need to drag in over-capitalization to account 
for its receivership in 1875, which followed "as the night the 
day" from the business causes revealed in the following table. 



156 



Business of the Erie, 1869 to 1875. 





Passenger 


Passenger 


Per 


Freight Ton 


Freight 


Per 




Mileage 


Receipts 


Passenger 


Mileage 


Receipts 


Ton 


Year. 


(thousands). 


(thousands). 


Mile 
(cents). 


(thousands) . 


(thousands). 


Mile 
(cents). 


1868-69. . . 


128,455 


$4,043 


3.15 


817,829 


$12,583 


1.54 


1869-70. . . 


133,589 


3,968 


2.97 


898,862 


11,983 


1.33 


1870-71... 


148,242 


3,972 


2.68 


897,446 


12,861 


1.44 


1871-72. . . 


156,143 


3,329 


2.13 


965,925 


14,509 


1.52 


1872-73. . . 


164,633 


3,651 


2.22 


1,032,986 


15,015 


1.45 


1873-74. . . 


160,204 


3,705 


2.31 


1,047,420 


13,740 


1.31 


1874-75. . . 


155,396 


3,461 


2.23 


1,016,618 


12,287 


1.21 



The reduction in passenger and freight rates between 1871 
and 1875 tells the tale — and it is an old one — of this Erie re- 
ceivership. If the railroad had received the same rates in 1875 
that it did in 1870-71, its receipts from passengers would have 
been $4,164,612 instead of $3,461,304, and from freight $14,639,- 
299 instead of only $12,287,399. 

The same cause — reduced rates — produced the same results 
throughout the country. The year 1876 showed an increase of 
6,092,000 tons of freight moved over the previous year with an 
absolute decrease of $2,922,858; and Poor's Manual presents the 
following table showing the conditions prevailing in the three 
states of Massachusetts, New York and Ohio as illustrative 
of the effect of reduced rates in New England, the Middle 
States and the Middle West: 





TONS MOVED. 


Rate per Ton Mile 
in Cents. 




1876. 


1871. 


Increase. 


1876. 


1871. 




11,327,502 
22,891,828 
29,348,788 


8,934,104 
14,174,544 
18,554,340 


2,393,398 

8,717,284 

10,794,459 


2.04 
1.19 
1.12 


3.11 




1.77 


Ohio 


1.82 






Total 


63,568,129 


41,662,988 


21,905,141 


1.23 


1.94 







This showed a decrease of .71 of a cent per ton mile for these 
states — a ratio which, if applied to the whole country, meant 
that in 1876 the railways received $132,000,000 less than they 
would have received had the rates of 1871 been in effect. 

Evidently it was the watering of the rates and not of the 
capital of the railways that was the "most potent" cause of the 



157 



receiverships of 1874-1877, involving the following mileage and 
capital : 

Involved in Receiverships in 1874-1877. 





Mileage. 


Capital Stock. 


Funded Debt. 


1874 


6,825 
6,280 
3,692 
3,917 


$235,179,293 

211,740,414 

87,181,928 

65,454,116 


$236,285,961 


1875 


204,312,038 


1876 


114,783,799 


1877 


95,937,385 






Total 


20,714 


$599,555,751 


$641 319 183 


Total Capitalization 


$1 140 874 934 











As the total operated mileage of the country in 1874 v^as 
only 69,273, capitalized at $4,221,763,594, it is evident that 
two-sevenths of the mileage and more than one-quarter of the 
capitalization was involved in the financial tribulations of these 
four years of business stagnation. 

Incomplete as are the reports of the cost of construction of 
these 20,714 miles, they show an aggregate of $1,032,783,972 
expended, or within $107,090,962 of the capitalization involved, 
without counting in the discounts paid to obtain funds in many 
cases, or the appreciation of much of the property and rights 
which had accrued during the forty years of railway construc- 
tion. 

Before they were reorganized, the original investment of the 
stockholders in some of the roads was entir,ely wiped out, in 
some it was scaled down and in others, as in the case of the 
Erie, working capital was obtained by assesments on stock- 
holders. The Northern Pacific emerged from the receivership 
with its bonded indebtedness and deferred interest converted 
into preferred stock. 



It was not until 1880 that railway earnings showed that they 
had partially recovered from the severe drag that followed the 
depression of 1873-74. But so urgent had been the demand 
for more railways in the meantime that, while the gross earn- 
ings increased from $520,466,016 in 1874 to $613,733,610 in 
1880, the earnings per mile were still below those of 1874. 

A study of the dividends paid during the period of depression 



158 



reveals how exhausting was the process through which the 
railways were pumped dry of any water that had been injected 
into their stock prior to 1871 — and even their critics admit that 
it was comparatively little: 



Dividends During Depression of 1873. 





Dividends Paid 
on Stock. 


Per Cent 
on Stock. 


1872 


$64,418,418 
67,120,709 
67,042,942 
74,294,208 
68,039,668 
58,536,312 
53,629,368 
61,681,470 
77,115.371 


3.91 


1873 


3.45 


1874 


3.37 


1875 


3.38 


1876 


3.03 


1877 


2.53 


1878 


2 34 


1879 


2 57 


1880 


2.84 







From which it is apparent that the low point in the profits 
from investments in railway stocks for this period was touched 
in 1878. There was a further recovery which reached 2.94 per 
cent, in 1881, but from that year to this dividends on gross cap- 
ital stock have never risen to the level of 1872, whereas they 
were destined to go many points lower. 

So large a proportion of capital stock in 1876 was non-paying 
that the dividend rate on paying issues was 7.26 per cent., which 
it is interesting to compare with the 5.78 per cent, paid on divi- 
dend paying stock during the prosperous year 1905. 

The Recession of 1885. 

With the return of good times and a sound currency in 1880, 
there came a resumption of railway building which proved that 
the country was anxious for more transportation facilities, al- 
though in much of the territory into which roads were ex- 
tended it had not the traffic in sight to support them. In the 
four years 1880-1883 inclusive, over 31,000 miles were added 
to the mileage in the United States, being equivalent to an in- 
crease of nearly 40 per cent, over the mileage of 1879. Nothing 
like it had been known before, although it has been equalled 
since. This phenomenal construction was accompanied by an 



159 



increase of capitalization amounting to no less than $5,091 
per mile, so that in 1883 the gross capitalization of American 
railways was $64,768 per mile. While much of this increase was 
through duplication, it has been estimated that $550,000,000 was 
either wholly fictitious or represented the reckless and sometimes 
unscrupulous financiering of a period of feverish speculation and 
over-production. The paralleling of the New York Central 
by the West Shore, which was scarcely opened for business 
before it went into a receivership, to be bought for what it was 
worth under foreclosure by the road it was intended to rival; 
and the construction of the "Nickel Plate" solely for specu- 
lative purposes, were two characteristic incidents of the years 
preceding the "panic of 1884." Only the excellence of the crops 
and favorable trade balances tided the country over a universal 
business catastrophe which was predicted by conservative ob- 
servers. 

Such were the conditions that presaged another period of 
receiverships for railways in 1884, as shown in the following 
table : 

Receiverships 1880-1885. 



Year. 


Number 
of Roads. 


Mileage. 


Capital 
Involved. 


1880 


13 
5 
12 
11 
36 
46 
12 
10 


885 
110 
912 
1,990 
8,846 
8,557 
1,770 
1,204 


$140,265,000 


1881 * 


3,742,000 
39,074,000 


1882 


1883 


108,470,000 
669,088,000 


1884 


1885 


466,416,000 


1886 


67,584,000 
92 500,000 


1887 






Total 


145 


24,274 


$1,587,139,000 







During the year 1884 no less than 48 companies operating 
15,359 miles of road with an aggregate capitalization of $708,- 
594,046 (exclusive of nearly $100,000,000 funded debt of the 
Philadelphia & Reading Railroad involved with the Philadelphia 
& Reading Iron & Coal Compan}^) were in the hands of re- 
ceivers, against which the construction account showed a cost 
of $612,419,335, with many omissions. 



160 



While a large number of the roads included in the foregoing 
table were taken out of the hands of the courts through re- 
organizations, the following statement of the foreclosure sales 
during the three years 1885-1887 show how the majority of 
them fared: 

Railroad Foreclosure Sales 1885-1887. 



Year. 


Roads. 


Mileage. 


Capitalization. 


1885 


26 
39 

28 


2,898 
7,858 
5,129 


$267,956,000 
420,367,000 ' 


1886 


1887 


311,649,000 






93 


15,885 


$999,972,000 



Through these proceedings and the accompanying reorgani- 
zations it is estimated that investments in about $500,000,000 
par value of capital stock were wiped out. By 1887 the so- 
called water in American railways had been pretty effectually 
evaporated; and the track was clear for another period of con- 
struction, expansion and competition. 



Billions Involved in the Panic of. 1893. 

Between the years 1877 and 1887, before the Interstate Com- 
merce Act was passed, there had been a remarkable reduction 
in rates. In the former year, according to Judge Cooley, 
chairman of the Commission, "the rates charged on first, sec- 
ond, third and fourth classes of freight from New York to 
Chicago were, respectively, 100, 75, 60 and 45 cents a hundred 
pounds. They are now (1887) 75, 65, 50 and 35 cents, but the 
classification as to many articles has in the meantime been 
reduced so that the actual reduction is greater than these fig- 
ures would indicate. Rates from Chicago to New York are 
also proportionately less. A similar result has been apparent 
elsewhere." 

In 1888, at the end of a decade during which freight rates 
had been reduced fully 25 per cent., the condition of the rail- 
ways, as summarized from the first reports to the Commission, 
was as follows : 



161 



First Official Railway Statistics, 1888. 



Mileage (official) (miles) 

Locomotives (number) 

Passenger cars (number) 

Freight cars (nvunber) 

Capital stock $3,864, 468;0o5 

Funded debt 3,869,216,365 

Total capital 

Cost of road and equipment (1889) 

Passengers carried one mile (number) 

Average number in a train 

Receipts from passengers 

Revenue per passenger per mile (cents) 

Average cost of carrying one passenger per mile (cents) 

Tons of freight carried one mile (number) 

Average haul per ton (miles) 

Revenue per ton per mile (cents) 

Average cost of carrying one tonper mile (cents) 

Interest on bonds and other debt 

Dividends paid. 

Number of employes (1889) '. 

Compensation 



136,883 
29,036 
25,665 

885,668 



$7,733, 

7,271, 

10,950,1 

$237, 



,684,420 
,498,570 
,000,000 
42 
,266,377 
2.349 
2.042 
61,027,000,000 
127.36 
1.001 
0.630 
,288,021 
,943,041 
704,473 
.294.024 



$205, 

78, 



$400. 



A comprehension of the items in this table is necessary to 
an understanding of the causes leading up to the crash of 1893. 
With the recovery from the recession of 1884, railway build- 
ing \vas resumed with a rush, so that in the six years 1887 to 
1892, inclusive, no less than 40,803 miles of line or over 30 
per cent, was added to the mileage of 1886. Almost as many 
more miles of subsidiary track was laid during the same period, 
so that it is not at all surprising to find that by 1892 the gross 
capitalization had increased to $9,686,146,813, of which, how- 
ever, $1,391,457,053 was duplicated through intercorporate own- 
ership. 

That a large expansion of capital was necessary to meet the 
demands of traffic is proved by the fact that the passengers 
caried one mile in 1892 numbered 13,362,898,299, an increase 
of 30 per cent, over 1888, and the tons of freight caried one 
mile were 88,241,050,225, an increase of over 44 per cent, dur- 
ing the same period. 

An increase of 30 per cent, in passenger service and of 44 
per cent, in the freight service performed for the public would 
appear to justify an addition of 30 per cent, to the mileage con- 
structed by an addition of only 25 pier cent, to the gross cap- 



162 

italization, irrespective of how that capitalization was swelled 
with "water" or intercorporate ownership. 

And so in fact it would, but for the undermining effect of 
the reduction in rates which attended these efforts to keep 
abreast of the increasing demands for transportation. The 
following table shows the actual receipts of 1892 from passen- 
gers and freight compared with what they would have been 
had the rates of 1888 been sustained: 



1892. 
Actual. 



1892. 

On the Rates of 

1888. 



Gross passenger earnings. 
Gross freight earnings. . . . 



$286,805,708 
799,316,042 



$313,930,500 
833,392,400 



Total $1,086,121,750 



$1,197,322,900 
Loss in revenue due to reduction of rates $111,201,150 

It only needed another year's continuation of the suicidal 
policy of rate reduction, coincident with a recession in busi- 
ness, to plunge scores of railroad companies into bankruptcy. 
And despite the phenomenal passenger traffic of the World's 
Fair year, the coincidence happened in 1893, although only 
partially reflected in the official statistics for that year. The 
full effect of the havoc wrought in railway receipts by a con- 
tinuous reduction in rates was shown in a "deficit from opera- 
tions" of $45,851,294 in 1894, where there would have been a 
surplus of $109,253,085 had the rates of 1888 been maintained. 

Commenting on what followed, the Official Statistician said: 
"Railway construction was arrested, development of railway 
equipment was nearly stationary, railway employes were re- 
duced and that after a series of years which showed an aver- 
age annual increase in the payroll of 42,215 employes. * * * 
Every item on the income account shows a decrease. * * * 
To meet the deficit occasioned by the payment of the usual 
dividends to stockholders and to operate the property, it was 
found necessary to reduce the corporate investments in stocks 
and bonds by $7,094,413, to reduce th.e cash and current as- 
sets by $44,402,673, and to deplete the fund of materials and 



163 

supplies so that the stock on hand was worth $13,988,383 less 
at the close than at the beginning of the year." 

As a matter of act, the statistician's own figures show that 
the usual dividends were not paid to stockholders, being only 
$95,515,226 on $4,834,075,659 outstanding in 1894 against $100,- 
929,885 on only $4,668,935,418 in 1893. Had the "usual divi- 
dends" of 1893 been paid in 1894 they would have been $104,- 
414,000, or nearly $9,000,000 more than they were. 

The real reason why the several funds mentioned by Profes- 
sor Adams had to be reduced or depleted was not the payment 
of the "usual dividends" or the operation of the property, but 
the fact that the average passenger receipts had been reduced 
from 2.349 cents per mile in 1888 to 1.986 cents in 1894 and 
the average freight receipts had declined from i.ooi cents to 
0.860 cents during the same period. The consequent loss in 
passenger receipts was $51,869,070, and in freight receipts $113,- 
272,350; making a total loss due to this cause alone of $164,- 
142,420. 

"This first and most potent cause" resulted in placing 192 
roads, with a mileage of 40,818 miles and a capitalization of 
about $2,500,000,000, under the control of receiverships as of 
June 30, 1894, which led the statistician to exclaim, "This as 
a record of insolvency is without a parallel in the previous 
history of American railways, except it be in the period from 
1838 to 1842." 



On a preceding page (61) is given a brief table of the re- 
ceiverships from 1894 to 1899, inclusive, from data supplied by 
the official reports. Poors' Manual for 1900, in an exhaustive 
review of the subject, gives a complete list of the roads placed 
under receiverships and sold under foreclosures during the years 
1884 to 1899, inclusive, of which the following are summaries : 



164 



Summary by Years of Number, Mileage and Capital of 
Railways Placed in Receivers' Hands 1884-1899: 



Year. 


No. 


Mileage. 


Stocks. 


Bonds. 


Total 
Capitalization. 


1884 


36 
46 
12 
10 
21 
21 
21 
30 
40 
119 
45 
33 
35 
21 
19 
12 


8,846 
8,557 
1,770 
1,204 
3,209 
3,777 
2,462 
1,963 
4,250 
27,883 
4,177 
3,390 
2,940 
1,463 
2,048 
1,043 


$270,002,059 

248,071,302 

31,310,375 

48,474,192 

106,389,535 

100,720,288 

44,668,355 

47,952,915 

196,440,572 

835,768,845 

151,036,759 

148,966,639 

95,207,200 

45,891,071 

61,415,800 

29,676,250 


$ 399,086.119 

218,345,400 

36,274,443 

44,026,400 

93,249,357 

94,058,562 

59,628,363 

30,396,552 

143,732,248 

1,160,426,166 

103,779,192 

193,631,529 

147,929,905 

44,624,111 

85,287,590 

37,401,000 


$ 669,088,178 

466,416,702 

67,584,818 


1885 


1886 


1887 


92 500,592 


1888 


199,638,892 
194 778,850 


1889 


1890 


104,296,718 


1891 


78,349,467 


1892 


340,172 820 


1893 


1 996,195,011 


1894 


254,815,951 


1895 


342,598,168 


1896 


243,137,105 


1897 


90,515,182 


1898 


146,703,390 


1899 


67,077,250 






Totals 


521 


78,582 


$2,461,992,157 


$2,891,876,937 


$5,353,869,094 



Summary by Years of Number, Mileage and Capital of 
Railways Sold Under Foreclosure 1884-1899: 



Year. 


Num- 
ber. 


Mileage. 


Stocks. 


Bonds. 


Total 
Capitalization. 


1884. 


16 
28 
39 
28 
17 
27 
26 
22 
25 
21 
44 
53 
66 
42 
43 
28 


694 

2,898 
7,858 
5,129 
1,486 
2,802 
3,302 
3,281 
1,329 
1,123 
5,915 
10,446 
12,355 
5,831 
5,956 
3,408 


$ 12,924,000 

122,280,688 

197,744,517 

158,722,274 

28,793,950 

62,464,713 

75,998,588 

73,483,621 

30,758,770 

30,974,450 

232,272,980 

316,723,841 

430,195,249 

239,351,195 

104,308,123 

117,111,734 


$ 13,061,000 

145,676,077 

222,623,094 

152,926,782 

31,568,500 

83,456,187 

77,994,191 

83,190,500 

22,446,480 

17,791,500 

186,332,775 

452,095,991 

670,800,272 

201,173,947 

123,168,151 

147,724,479 


$ 25,985,000 


1885 


267,956,765 


1886 


420,367,611 


1887..... 


311,649,056 


1888 


60,362,450 


1889 


145,920,900 


1890 


153,992,779 


1891 


156,674,121 


1892 


53,205,250 


1893 


48,765,950 


1894. 


418,605,755 


1895 


768,819,832 


1896 


1,100,995,521 


1897. 


440,525,142 


1898 


227,476,274 


1899 


264,836,213 








523 


73,813 


$2,234,108,693 


$2,632,029,926 


$4,866,138,619 



It will be perceived in a study of these two summaries to- 
gether that scarcely were the railways foreclosed out of their 
trials, following the panic of 1884, than they were overtaken by 
the political and industrial storm of 1892-1893. 



165 



Among the principal roads included in the above summaries 
which went into receivers' hands and emerged through fore- 
closures were the following: 



Railroads. 


Year of 
Receiver- 
ship. 


Miles 
Owned. 


Capital 
Stock. 


Bonds. 


Atch Top & Santa Fe 


1893 
1894 
1896 
1898 
1887 
1884 
1885 
1892 
1888 
1884 
1893 
1885 
1893 
1884 
1895 
1895 
1893 
1893 
1893 
1884 
1893 
1893 
1893 
1884 
1893 
1889 
1885 


4,438 

691 

532 

921 

511 

1,317 

1,071 

1,265 

1,595 

328 

361 

513 

544 

473 

431 

1,328 

3,429 

643 

1,480 

327 

327 

992 

1,823 

2,483 

668 

1,222 

1,487 


$102,000,000 
79,760,000 
30,000,000 
30,000,000 
36,098,282 
38,000,000 
44,000,000 
57,000,000 
46,410.157 
20,000,000 
23,632,000 
50,000,000 
86,363,600 
40,000,000 
44,999,350 
59,500,000 
85,140,131 
24,000,000 
28,161,720 
34,668,425 
40,428,000 
50,000,000 
■ 60,868,500 
52,626,800 
14,735,475 
23,083,000 
32,164,600 


$228,082,000 




38,913,629 


Baltimore & Ohio, 


81,251,376 




51,844,690 
32,881,400 


TDliesapeake & Ohio 


Denver & Rio Grande 


28,123,000 


East Tenn., Virginia & Ga. R. R.. .... 

East Tenn., Virginia & Ga. Ry 


26,200,000 
39,000,000 
46,630,000 


New York & New England 


12,833,000 


New York & New England 


16,500,000 
20,046,000 


N. Y., Chicago & St. Louis 


N. Y., L. Erie & Western 


77,643,885 


N. Y., West Shore & Buffalo 


70,000,000 


N. Y., Penn. & Ohio 


96,736,000 




55,074,200 




133,026,000 


Oregon Ry. & Navigation Co 


22,703,000 
49,832,000 


Philadelphia & Reading. . 


97,782,327 
152 000 000 


Philadelphia & Reading . . . 


St Louis & San Francisco. . . 


42,686 300 


Union Pacific 


85,492 185 


Wabash St Louis & Pacific 


76 434 834 


Wisconsin Central 

St. Louis, Ark. & Texas 


18,214,122 
32,808 000 


Texas & Pacific 


43,340,000 










31,198 


$2,131,638,040 


1,676,077,948 



The potent story — if not the whole story — of what caused 
most of the 1893 receiverships is told in the decrease in their 
gross receipts per mile between 1893 and 1894, which was in 
turn caused by the decline in their average receipts per passen- 
ger and ton mile as exhibited in the following table of those 
roads whose statistics are available : 



166 



Comparative* Summary of Earnings Per Mile, and Per Pas- 
senger AND Ton Mile of 12 Railways Involved in Re- 
ceiverships 1893-1894. 





1893. 


1894. 




Year Ending June 30. 


Year Ending June 30. 


Road. 


Gross 
Earnings 
per Mile. 


Receipts 
per Pas. 

Mile 
(cents). 


Receipts 
per Ton 

Mile 
(cents). 


Gross 
Earnings 
per Mile. 


Receipts 
per Pas. 

Mile 
(cents). 


Receipts 
per Ton 

Mile 
(cents). 


A. T. & S. F 

Bait & Ohio 


$5,523 

15,230 

4,560 

11,040 

17,635 

6,447 

5,383 

4,560 

5,570 

19,503 

5,052 

11.176 


2.264 
1.660 
2.400 
1.990 
1.572 
2.897 
2.630 
3.056 
2.603 
1.804 
2.319 
2.040 


1.191 

.69 

.85 

1.09 

.637 

.514 

1.230 

1.850 

1.206 

1.036 

1.198 

1.060 


$4,521 

12,996 
3,134 
9,800 

14,819 
6,154 
3,729 
3,650 
4,120 

17,360 
4,184 
9,535 


2.096 
1.590 
2.390 
1.970 
1.514 
2.850 
2.460 
2.888 
2.481 
1.773 
2.116 
1.950 


1.092 
670 


E.Tenn., Va. &Ga.... 
N.Y.& N.England... 
N. Y.,L. Erie & West.. 

Nor. & Western 

Northern Pacific 

Ore. Ry.&Nav.Co... . 

Ore. Short Line 

Phila. & Reading 

St. Louis & S. Fran. . . . 
Union Pacific 


.820 

1.060 

.596 

.466 

1.120 

1.640 

1.081 

1.011 

1.126 

980 











Moreover, the rates for both passengers and freight in 1893 
were already almost at the bottom of the gradual decline that 
brought them from the level of the 1884 period of receiverships 
to that of the 1894 period. Between these years the rates of the 
Atchison, Topeka and Santa Fe fell from 2.648 cents per pas- 
senger mile and 1.882 cents per ton mile to those given in the 
above table; of the New York and New England from 2.02 and 
1. 41 cents respectively; of the New York, Lake Erie and West- 
ern (the Erie) from 2.188 and .685 cents; of the Norfolk and 
Western from 2.71 and 1.18 cents; of the Northern Pacific from 
3.44 and 1.96 cents; of the Oregon Railway and Navigation 
Company from 3.99 and 345; of the Philadelphia and Reading 
from 1.84 and 1.38 cents; of the Union Pacific from 2.903 and 
1.910 cents; and of the St. Louis and San Francisco from 2.87 
and 1.57 cents. 

For the entire country the rates per mile between 1884 and 
1894 declined from 2.36 to 1.986 cents per passenger and from 
1. 13 to 0.86 cents per ton. This decrease of 37/iooths of a cent 
per passenger mile and 27/iooths per ton mile caused a loss of 
no less than $299,775,826 — on the trafiic of 1894 — a sum suffi- 



167 

cient to have insured the solvency of every road in the United 
States during that disastrous year. 

It was the steady drain of declining rates, and not over-cap- 
italization that v^as the ''potent cause" of the railway receiver- 
ships of 1893-1897. 

Before the railways recovered from the prostration and ex- 
haustion of this trying period, millions of fresh capital had to 
be raised to make good the deterioration inseparable from de- 
pleted treasuries. This was independent of and in addition to 
the millions that might have been paid in dividends that were 
diverted from the pockets of stockholders to maintain the prop- 
erty and keep it in condition to perform its public service, when 
politics and financial soundness permitted a resumption of na- 
tional industry. 

Let me illustrate this process by a few well-known examples : 

Three Examples of Receiverships. 
The Atchison, Topeka & Santa Fe. 

As shown in the preceding table and paragraphs, the Atchi- 
son, Topeka and Santa Fe's failure to meet the interest on its 
bonds was due to the drop in its revenues following the reduc- 
tion of its passenger and ton mile rates from 2.648 and 1.882 
cents respectively in 1884 to 2,264 and 1.191 cents in 1893. 

When it went into the hands of the Court its funded debt 
was $228,082,000 and its capital stock $102,000,000. When it 
emerged after foreclosure its funded debt had been scaled down 
to $162,278,050 and its capital 6tock increased to $213,468,000. 
The increase in stock was accounted for by the issue of $111,- 
486,000 preferred stock to the holders of old 2d mortgage bonds, 
amounting to over $90,000,000, on payment of a 4 per cent, as- 
sessment, and as a bonus to holders of the original stock on 
whom an assessment of $10 a share was levied. As shares in 
the old company for which par had been originally paid were 
worth only $13 at the date of reorganization, it required faith 
to pay the $10 a share assessment necessary to hold on. It 
was 1899 before a 2J per cent, dividend was declared on the 
preferred stock, and 1901 before a ij per cent, dividend was paid 
on common. 



168 

For eleven years from 1888 to 1898 all capital stock in the 
Atchison, which prior to the former date had been a 6 per cent, 
stock, lay fallow, paying no dividends whatever. And as about 
$13,000,000 in cash was paid into the treasury for the privilege 
of retaining it, it is clear that from $70,000,000 to $80,000,000 
fairly due the owners of the stock and second mortgage bond 
holders was either paid in by or retained from them for the 
benefit of the property. Against this there was an increase in 
nominal capitalization of less than $46,000,000, the ownership 
of the property had been consolidated and the road renovated 
and vastly improved at a cost of over $40,000,000, not repre- 
sented in capital. It is evident that the water in the Atchison 
reorganization of 1896 was blood drawn from the body of its 
stockholders for the benefit of the public. 

- The Baltimore & Ohio. 

The Baltimore and Ohio went into receivers' hands in 1896, 
owning 532 miles of road with $81,251,000 funded debt, and $30,- 
000,000 capital stock. It came out through a reorganization, 
without a foreclosure, in 1899 owning 1017 miles of road, with 
$134,233,350 funded debt and $74,227,767 capital stock. It also 
owned stocks and bonds with a ledger value of over $10,000,000 
and operated 2047 miles of road, which had been practically re- 
newed and re-equipped throughout during the three years it 
was under the receivership. It is not possible to approximate 
how much cash went into the property during this period, but 
there was a hiatus in dividends between 1896 and 1900 that 
represented more than $7,000,000 loss to shareholders, which was 
used to fertilize the property. Moreover, when dividends were 
resumed in 1900 the rate was only 4 per cent, where previous 
to their discontinuance in 1896 it had been 6. It was 1907 be- 
fore the dividend rate on common was restored to 6 per cent., 
that on preferred remaining fixed at 4. Where previous to 
1896 the Baltimore and Ohio was paying between 5 and 6 
per cent, interest, since the reorganization the rate has been 
between 3J and 4. Since 1900 over $100,000,000 stock has been 
sold at par and the proceeds invested in acquiring auxiliary 
lines, improvements and equipment necessary to meet the de- 
mands of a traffic that has more than trebled in the meantime. 



169 

Manifestly the effect of the receivership of 1896 and the re- 
organization of 1899 was to place the Baltimore and Ohio on a 
bedrock financial basis. 

The Erie. 

As a final illustration of the economic effect of receiverships 
upon the capitalization of railways, let us consider the Erie, 
which from its earliest history has been the sport of adverse 
circumstances. Chartered as the New York and Erie Railroad 
in 1832, its construction and success were embarrassed by a 
provision that it was to be built entirely within the State of 
New York. After many vicissitudes it was finally completed 
to Buffalo and extended through New Jersey to Jersey City. 
Its first experience with receiverships was in 1859, from which 
it emerged as the Erie Railway. We have already reviewed 
the causes of its insolvency in 1875. It went into that receiver- 
ship w^ith a total capitalization of $140,808,724 and was reor- 
ganized in 1878 with a capitalization of $151,564,595 — the in- 
crease being wholly in funded debt on which the interest charge 
was reduced from 7-64/100 to less than 6J per cent. The cap- 
ital stock remained the same, holders being assessed $2 or $3 
and $4 or $6 per share on preferred and common stock, respec- 
tively — the higher rate receiving a premium in income bonds. 
The sum thus raised, together with funds from the sale of 
bonds, amounting to $6,000,000, were put into much needed im- 
provements. 

During the fifteen years between the Erie's reorganization 
in 1878, as the New York, Lake Erie and Western, and the 
receivership of 1893 no dividends were paid on the $77,837,000 
of its common stock, and only 6 per cent, in 1882, '83 and '84, 
and 3 per cent, in 1892 on its $8,536,600 preferred. Between 
the receivership of 1875 and that of 1893 ^^e receipts from pas- 
sengers per mile had declined from 2.220 to 1.572 cents and 
from freight from 1.208 to 0.637. ^^ short, had the rates of 
1875 been charged in 1893 the company's receipts would have 
been $52,891,000 instead of $29,993,160 on the same volume of 
traffic, and there would have been no necessity for a receiver- 
ship. 



170 

Between 1878 and 1893 the funded debt had been increased 
from $66,818,203 to $77,643,885 with no addition to capital stock. 
The mileage owned, leased and operated had been extended 
from 957 to 1701 miles; the number of locomotives had in- 
creased from 466 to 626, passenger cars from 304 to 590 and 
freight cars from 11,298 to 12,830, irrespective of their greater 
average capacity. 

When the New York, Lake Erie and Western went into the 
receiver's hands in 1893, its capital obligations were, common 
stock, $77,827,000; preferred stock, $8,536,600, and funded debt, 
$77,643,885, upon which last the annual charges were $4,680,781. 

When it emerged as the Erie Railroad in 1895, its capital 
obligations were: Common stock, $100,000,000; First Preferred, 
$30,000,000, and funded debt, $102,905,577. Including bonds on 
properties controlled through ownership of capital stock the 
funded debt outstanding April i, 1896, was $126,009,100, upon 
which the annual interest charge was $5,005,899, or only $325,- 
118 more than on the smaller debt of 1893. An increase of 258 
miles of line owned, and the acquisition of all the stock and 
bonds of the New York, Pennsylvania and Ohio (from Sala- 
manca, N. Y., to Cleveland and Dayton, Ohio) accounts for 
the major part of this increase in gross capitalization — the se- 
curities owned and pledged under its first consolidation deeds 
aggregating no less than $64,705,000. 

In the process of reorganization the shareholders were called 
on to pay an assessment amounting to $10,844,370. The hold- 
ers of common stock had received no dividends between the 
assessments of 1878 and 1895 and the only payments on pre- 
ferred were those noted above. 

The following statement shows the mileage of the Erie owned, 
leased and operated before and after the receivership of 1893 : 



171 





1893. 


1896. 


Title. 


Length of 

Line 

(Miles). 


Total 
Track 
(Miles). 


Length of 

Line 

(Miles). 


Total 
Track 
(Miles). 


Owned .... 


551 
539 .... 
12 .... 
551 
598 
270 


1,228 

- 1,083 
977 
393 


1,608 

792 .... 

816 .... 

277 

80 

200 


2,709 


In fee 


Proprietary roads 




Leased 


848 


Operated 


172 


Controlled 


209 






Erie System 


1,970 


3,681 


2,165 


3,938 







Between 1873 and 1893 the Erie system had been converted 
from a 6-foot gauge road laid with 64 to 70 lb. iron rails to a 
standard 4-ft. 8J in., gauge road, laid with 56 to 60 lb. steel 
rails, and before it emerged from the receivership the weight 
of its steel rails had been increased .to 68 to 80 lbs. When the 
change from iron to steel was begun steel rails cost $120 a ton. 
The cost of improvements planned in 1873 (most of which were 
executed out of assessments on stock, sales of bonds and from 
undivided profits) were estimated at $39,720,000. 

The unenviable notoriety attending the financiering of the 
Erie has overshadowed the streams of money from various 
sources that, since the time when its first stockholders sur- 
rendered half their holdings to induce new subscriptions, down 
to the present day have been poured into its maintenance and 
improvement. 

The work of making the Erie an easy grade line from Chi- 
cago to tidewater has been progressing steadily for years. Dur- 
ing the past six years the tractive power of its engines has been 
increased nearly 60% ; and in ten years the capacity of its 
freight cars has been increased 84%. The combination of these 
elements has enabled the Erie to increase its average trainload 
over 80%, but it has yet to pay a dividend on its common stock. 

Common Effect of Receiverships. 

The experiences of the Atchison, Topeka and Santa Fe; the 

Baltimore and Ohio, and the Erie, were common to nearly every 

railway that went to the wall in the panic of 1893. They found 

themselves carrying trafific at such reduced rates that when the 



174 



Summary of Rates of Interest and Dividends Paid on 
Railway Capital — 1871-1I 





Interest. 

Per Cent on 

Bonds and Debt. 


Dividends. 

Per Cent on 

Stock. 


1871 


No data. 

« 

« 

« 
4.32 
4.39 
4.16 
4.53 
4.00 
4.16 
4.39 
4.58 
4.54 
4.65 
4.53 
4.54 
4.20 


4 19 


1872 


3 91 


1873 


3 45 


1874 


3 37 


1875 


3 38 


1876 


3.03 


1877 


2.53 


1878 


2.34 


1879 


2 57 


1880 


2.84 


1881 . . .• . 


2 94 


1882 


2.92 


1883 


2.77 


1884 


2.48 


1885. 


2.00 


1886 


2.04 


1887 


2 18 


1888 


1.77 







These figures include duplications, both in the capitalization 
and the returns thereon. Since 1888 the official statistician has 
presented summaries giving the "average rate paid on dividend 
paying stock," which, however, is valueless as an indication of 
the return on capital invested. It is included in the following 
continuation of the preceding statement for purposes of com- 
parison with the rates based on the official reports and as given 
in Poor's Manual : 



175 



Summary of Rates of Interest and Dividends Paid on 
Railway Capital — 1888-1905. 





Interest Per Cent 
on Funded Debt. 


Dividends Per Cent 
on Stock. 


Average Rate 
Paid on 


Year. 


Poor's 
ManuaL 


Official. 


Poor's 
Manual. 


Official. 


Dividend-Paying 
Stock. 


1889 


4.40 
4.27 
4.25 
4.25 
4.31 
4.19 
4.24 
4.45 
4.24 
4.21 
4.26 
4.27 
4.24 
4.10 
4.17 
4.01 
3.79 
3.99 


4.99 
4.86 
4.54 
4.75 
4.79 
4.72 
4.67 
4.67 
4.70 
4.53 
4.55 
4.48 
4.46 
4.49 
4.41 
4.33 
4.28 


1.79 
1.82 
1.87 
1.93 
1.88 
1.66 
1.58 
1.52 
1.51 
1.71 
1.92 
2.44 
2.65 
2.97 
3.03 
3.31 
3.27 
3.63 


1.93 
1.99 
2.05 
2.15 
2.16 
1.97 
1.72 
1.67 
1.62 
1.78 
2.01 
2.38 
2.70 
3.08 
3.19 
3.50 
3.63 


5.04 


1890 


5.45 


1891 


5.07 


1892 


5.35 


1893 


5.58 


1894 


5.40 


1895 


5.74 


1896 


5.62 


1897 


5.43 


1898 


5.29 


1899 


4.96 


1900 


5.23 


1901 


5.26 


1902 


5.65 


1903 


5.70 


1904 


. 6.09 


1905 


5.78 


1906 









The discrepancies in the average rates of interest and divi- 
dends between the official computation and Poor's Manual con- 
firm rather than lessen the value of these figures as illustrating 
the fluctuation in the returns on railv^ay capital. One set is 
based on incomplete returns for the calendar years and the 
other on v^ell nigh complete returns for the fiscal years. Both 
columns emphasize the failure of the official "average rate 
paid on dividend paying stock" to reflect the actual return on 
railv^ay capital. This is more nearly approached in the fol- 
lowing table showing the average rate of net dividends paid 
on the net capital stock, the data for which has only been avail- 
able since 1898: 



176 



Net Dividends on Net Capital Stock Since i 



^ 


Capital Stock 

Outstanding. 

Not Duplicated. 


Net Dividends. 


Average Rate of Net 

Dividends to Net 

Capital Stock. 


1898 


$4,236,404,163 
4,307,513,427 
4,375,360,621 
4,069,898,993 
4,314,055,951 
4,357,235,824 
4,397,040,970 
4,484,504,943 


$ 83,995,384 
94,273,796 
118,624.409 
131,626,672 
' 157,215,380 
166,176,586 
183,754,236 
188,175,151 


1.98 


1899 


2.19 


1900 


2.71 


1901.. 


3.23 


1902 


3.64 


1903 


3.81 


1904 


4.20 


1905 


4.19 







This table proves that the ratio of dividends to stock as dis- 
closed by the preceding computations, based on gross capital 
stock and gross dividends, is very much nearer arriving at the 
true rate of returns on railway capitalization than the ''average 
rate on dividend paying stock," as annually computed by the 
Official Statistician. It also reflects the fluctuations in such 
returns, which the Statistician's formula does not, but some- 
times actually reverses — vide the returns for 1895 and 1899. 

From the above tables it will be seen that the average re- 
turn on capital invested in American railways in 1905, the most 
prosperous year for which we have complete official figures, 
was 4.28 per cent, on funded debt, and 4.19 on capital stock, or 
4.25 per cent, on all railway capital. 

In 1905 the average interest or dividend paid on all de- 
scription of capital of the railways of the United Kingdom 
was 4.05, and this was on a net capitalization per mile over five 
times greater than that of American railways. 

If American railways were over-capitalized in proportion as 
British railways are, it would take a sum equal to their entire 
gross receipts in 1905 to pay 4.05 per cent, on the colossal ac- 
cumulation of expenditures on capital account. 

The extreme difference between American and foreign sys- 
tems of capitalization is summed up in two lines: 



177 





Capital 
per Mile. 


Rate on 

Capital. 


Capital Charge 
per Mile. 


British railways, 1905 


$273,438 
53,328 


4.05 
4.25 


$11,074 
2,266 


American railways, 1905 



The total earnings from operation of American roads in 1906 
were $10,460 per mile, or less by $614 than the capital charge 
per mile on British railways. 

No higher tribute could be paid to the economic soundness of 
the American railway policy of providing for betterments and 
a large proportion of improvements out of current income. Brit- 
ish railways are staggering to a bitter reckoning under the re- 
verse policy of charging all betterments and improvements to 
capital account. 




A Tail-Piece that Tells its own Tale 
(On the Great Northern) 



Built 1907 
Weight, 195.000 lbs. Cost. 115,750. 



Built 1892 
Weight. 40,000 lbs. Cost, $5,000. 



INDEX 



Page. 
Adams, Henry, on conditions in 1800 30 
Adams, Henry C, (official statis- 
tician), on balance sheet 60 

Adams, Henry C, on possibility of 

valuation 3 

Adams, Henry C, on what consti- 
tutes capital 47 

Alleghany Portage R. R., cost of 66 

Atchison, Topeka & Santa Fe, re- 
ceivership 167 

Australian railways, cost of 111 

Baldwin, crippled by panic of 1837.... 67 
Baldwin, locomotives, fast passenger 

1848 (Illustration) 68 

Baldwin, locomotives in 1861 (Illus- 
tration) SO 

Baldwin, locomotives in 1906 93 

Baldwin, locomotives, output 1856 — 

1860 79 

Balance sheet, cost as shown by 88 

Balance sheet, what it shows 60 

Baltimore & Ohio, breaking ground 

for 35 

Baltimore & Ohio, completed to 

Wheeling, 1850 43 

Baltimore & Ohio, receivership, 1896 168 

Belgian railways, cost of 107 

Betterments out of profits on Penn- 

slyvania 96 

Betterments and improvements out 

of income 24 

Boston and Albany (Western) con- 
dition of, in 1851 71 

British and American railways com- 
pared in 1844 _.__. 103 

British railways, characteristics of-. 102 

British railways, cost of 101 

British railways, cost of labor in 

construction ^ 105 

British railways, cost per mile 1850 — 

1905 --- -- 102 

British railways, early _ 103 

British railways, land damages for. _ 103 
Callaway, Samuel R., estimate of 

value of New York Central ter- 
minal 115 

Camden and Amboy R. R., growth 

of traffic on 45 

Camden and Amboy R. R., cost of.. 62 
Canals, Cooley on inability to com- 
pete with railways 33 

Canals, early, in the United States.. 32 

Canals, Erie „. 32 

Canals, first preferred to railways 19 

Capital, Adams, on what it includes. 4, 8, 47 

Capital, little relation to rates 6 

Capital, account in 1906. 52 

Capital, and cost by groups 98 

Capital, comparative, in 1867 48, 100 

Capital, gross, per mile 4, 47, 49 

Capital, gross, and per mile 1871 to 

1905 .- 49 

Capital, how duplicated 51 

Capital, net 47 

Capital, net per mile of line, 1890 to 

1906 51, 53 

Capital, net per mile of track, 1889 to 

,1906 54 

Capital, originally included current 

liabilities 47 

Capital, sources of 74, 77 

Carroll of Carrollton at breaking 

ground for B. & O 35 

Cars originally the property of indi- 
viduals 65 

Census of United States, 1830 38 

Central Pacific, initial cost of 81 

Charleston and Hamburg R. R., cost 

of 63 

Chicago and Alton, capitalization 

and rates 26 



Chicago and Northwestern, original 
project delayed by panic of 1837 
Chicago and Northwestern, first loco- 
motive arrives by boat 

Chicago and Rock Island reaches the 

Mississippi 

Chicago, Burlington & Quincy 

opened to Quincy 

Chicago, Milwaukee & St. Paul, 
Wisconsin Commission on cost. 
Chicago, Milwaukee & St. Paul, see 
Racine, Janesville and Missis- 
sippi _ 

Cheap construction, cost of items in_ 
Cincinnati, Union & Ft. Wayne, 

sources of capital for 

Cleveland & Pittsburgh, original cost 

of 

Cleveland, Columbus & Cincinnati, 

original cost of 

Columbia and Philadelphia, cost of.. 
Columbus, Piqua & Indiana, sources 

of capital for __ 

Commercial, valuation 

Comparative capitalization 

Comparison, value of railways as 

shown by 

Conditions in ante-railway times 

Construction, progressive steps in 

Construction, cost of, first 

Construction, cost of and net capita- 
lization, 1890 — 1906 

Construction, early, buried in ar- 
chives 

Construction, early, previous to 1840 
Construction, early, in decade 1840 — 

1850, . 

Construction, early, in decade 1850 — 

1860 

Construction, early, in 1860 

Construction, early, in 1870 

Construction, early, in 1880 

Construction, early, in 1890 

Construction and equipment, cost of 

in 1906 

Construction, as shown in balance 

sheet, cost of 

Construction, composite examples of 

typical cost 

Construction, cost, exam.ples of 

Cooley, Thomas M., on confusion as 

to sources of fortunes 

Cooley, Thomas M., on inability of 

canals to compete ■wdth railways 

Cooley, Thomas M., on object of 

regulation 

Cooper, Peter, designed first Ameri- 
can locomotive 

Cost of transportation in 1800 ^ 

Current liabilities originally included 

in capital _. 

Dana, Charles A., on Southern rail- 
ways in 1865 

De Toqueville on America in 1835 

De Witt Clinton, locomotive of 1831 

(Illustration) 

Difficulties in valuation, Minnesota 

Commission on .. ... 

Discount on sale of securities legiti- 
mate -._ 

Dividends, average on net capital 

stock 

Duplication of capital 

Early construction, economy of 

Early construction, not designed for 

heavy traffic 

Early New England Railways, cost 

of 

Early rates on Pennslyvania 

Earnings no test of cost 



Page. 
151 
43 
43 
43 
97 



77 
119 



76 



73 
64 

74 

11, 138 

100 

9 
29 
43 
58 



69 



67 



92, 116 

88 

117, 118 
116, 120 

27 

33 

5 

35 
31 

47 

79 
31 

39 

7 

19 

176 
51 

78 

44 

20,63 

66 

8 



INDEX— CONTINUED. 



Page. 
Elements in railway valuation, 

Supreme Court on 5, 7 

Employes, pay of Japanese railway. Ill 
Equipment, cost of, as shown in 

balance sheet 91 

Equipment, cost of reproducing 123 

Equipment, British and American 

compared 104 

Erie Canal, cost of construction 33 

Erie Canal, opened 1826 32 

Erie Railroad, opened to Lake Erie. 43 

Erie Railroad, receivership of 1874. _ 155 

Erie Railroad, receivership of 1894. _ 169 

Estimates of cost of Western roads. . 72 
European and American railways, 

cost compared 100 

European railways, cost of 100 

Expensive construction, example of 

cost of 119 

Farms, increased value of, in fifty 

years 25 

Foreclosures, 1884 to 1899 165 

Foreign railways, cost of 100, 101 

French railways, cost of 106 

Freight cars, cost of modern 126 

Freight, cost of moving by team haul 38 
Freight, rates allowed by first Penn- 
sylvania charter .. 37 

Freight, receipts per ton mile 4 

Freight yard in Chicago, a priceless 

(Illustration) 128 

Freight allowed in charter of Cleve- 
land and Pittsburgh 72 

Georgia, history of a state road in.. 124 

German railways, cost of 104 

German railways, cost of labor in 

building 105 

Grade crossings, cost of eliminating 

in Massachusetts 56 

Grade crossings, cost of eliminating 

in New York 57 

Gauge change of 1880-1887 85 

Half the Union without railways in 

1860-._. 80 

Harlem Railroad, cost of 64 

Highways, cost of country 37 

History, value as seen in 9 

History of American railways 29 

Horse path a feature of early rail- 
ways 65 

Horse power used on early railways. 35 
Illinois Central, Chicago to Cairo, 

completed in 1856 43 

Improvements charged to operating 

expenses ._ 25 

Improvements, cost of, out of income 23, 97 
Improvements, legitimate basis of 

capitalization 97 

Increment, natural and unearned _. 136 
Increase of railways in seven West- 
ern states 1870-1890 86 

Indian (East) cost of 111 

Intangible assets in Texas 115 

Intangible value of railways _ 11 

Intercorporate holdings of capital.. 51 
Interest, rate of when railways first 

built.... 19 

Investment, irrevocable. 10 

Japanese railways, pay of employes 

of 111 

Japanese railways, cost of 107 

Japanese railways, method of ascer- 
taining value of 110 

Japanese railways, cost of rolling 

stock of. 108 

Japanese railways, price paid by 

government for 110 

ICnapp, Chairman M. A., on relation 

between capital and rates 6 

Labor, cost of in construction 105 

Labor, cost of in Germany 105 

Labor, cost of in Great Britain 105 

Labor, cost of in Japan 105 

Labor, cost of in United States 111 

La FoUette, Senator, resolution in 

re-valuation 3 

La FoUette, Senator, estimate 13 



Page. 
La FoUette, Senator, seven billion 

error _ 14 

La FoUette, Senator, error exposed. 15 

Land, damages in Great Britain 103 

Land grants 76 

Land represented in capital 76 

Land values in large cities 132 

Land values per capita 132 

Land values per acre by states 130 

Locomotives, Baldwin, output 1853- 

1860 79 

Locomotives, Baldwin, weight 1853 79 

Locomotives, Baldwin, in 1861 60 

Locomotives, contrast in 1876-1906. 84 
Locomotives, cost of first Stephenson 

imported 37 

Locomotives, cost of modem 124 

Locomotives, demonstrated to run 

on curves 37 

Locomotives first used in the United 

States 34 

Locomotives, first arrive in Chicago 

by boat 43 

Locomotives, gold medal winner in 

1867 (Illustration) _ . 82 

Locomotives, freight in 1844 (Illus- 
tration) 67 

Locomotives,MalIet compound (Illus- 
tration) 93 

Locomotives race with a horse 35 

Locomotives, weight when first intro- 
duced 34 

Locomotives, weight now 93 

Locomotives, weight in 1855-60 79 

Mail train, fast, 80 miles an hour 

(Illustration) 95 

Market value of railways 141 

Massachusetts railways, statistics of 

in 1851 70-71 

Mauch Chunk Railroad, cost of 62 

Mileage of railways in the United 

States by states 1841-1906 46 

Michigan Central reaches Chicago 43 

Michigan's experience with state 

ownership 153 

Minnesota Commission on difficulties 

of valuation 7 

Mohawk and Hudson, initial cost of 64 
Mulhall, estimate of cost of French 

railways 106 

Natural increment, railways entitled 

to 136 

New England railway, statistics of 

in 1851... ... .. 71 

New York railway, statistics of in 

1851 70 

New York and Albany R. R., original 

estimates for 64 

New York and Hudson River R. R., 

initial cost of. 64 

New York Central, terminal rights.. 115 

New Zealand railways, cost of 112 

Northern Pacific begun in 1870 84 

Northern Pacific, cost of construc- 
tion 122 

Northern Pacific, value of right of 

way 136 

Northern Pacific, receivership of 

1874 155 

"Old Ironsides" locomotive (Illus- 
tration). 40 

Panic of 1837 152 

Panic of 1857 153 

Panic and receiverships of 1873 154 

Panic and receiverships of 1885 158 

Panic and receiverships of 1893.. ._ 160 
Passenger car, first on Pennsylvania 

(Illustration) '41 

Passenger cars, early cost 65,72,73 

Passenger cars, cost of modem 124 

Passenger cars, 1880 and 1905 (Illus- 
tration) ^ 90 

Passenger cars, steel (Illustration).. 91 
Passenger locomotive in 1848 (Illus- 
tration) 68 

Passenger rates allowed by Cleve- 
land and Pittsburgh charter .. 72 



INDEX-CONTINUED. 



Page. 

Passenger receipts per mile _ 4 

Passenger receipts in 1800 31 

Passenger receipts on Pennsylvania 

in 1834 66 

Passenger receipts in New England 

and New York in 1851 . . 70 

Passenger receipts on the Erie 1868- 

1875 156 

Passenger receipts 1888 161 

Passenger receipts 1905 98 

Passenger receipts 1893 and 1894... 166 

Pennsylvania, early rates on 66 

Pennsylvania (Columbia & Phila- 
delphia), initial cost of 64 

Pennsylvania (Columbia & Phila- 
delphia), rates under charter 37 

Pennsylvania, first locomotive used 

on (Illustration) 65 

Pennsylvania, growth of traffic on._ 95 
Pennsylvania income expended on 

improvements 96 

Philadelphia to Columbia, first 

charter 36 

Philadelphia and Columbia , cost of . . 64 
Philadelphia and Reading, initial 

cost of 66 

Pioneer railways of America 34 

Population of United States in 1830 38 
Population, density in United States 

1830-1906.- 129 

Population, density in Belgium 107 

Population, densitj' in France 107 

Population, density in Germany 105 

Population, density in Great Britain 102 

Population, density in Japan 107 

Population, increase in seven West- 
ern states, 1870-1890 _ 86 

Postal cars, cost of early and modern 73, 124 

Postal cars, modern (illustration) 124, 125 

Present capitalization 47 

Present cost of road and equipment. 88 

Price paid by Japan for private roads 110 

Profits, undivided reinvested 21 

Profits limited to 25 per cent in one 

early charter 69 

Property, value of all in the United 

States 144 

Property, assessed value for taxation 

by states ... 146 

Racine, Janesville and Mississippi, 

original cost of 77 

Rails, first laid on wooden stringers. 37 

Rails, early cost of. 69, 71, 72, 73, 82 

Rails, steel first introduced and cost 83 

Rates, charter on Pennsylvania 37 

Rates, charter on Cleveland and 

Pittsburgh 72 

Rates, reasonable, early directors 

judges of 74 

Rates, valuation does not control 3 

Reasons for valuation 6 

Receiverships, Atchison, Topeka and 

Sante Fe 167 

Receiverships, Baltimore and Ohio. . 168 

Receiverships, effect on railways 151,171 

Receiverships, Erie 155, 169 

Receiverships of 1873 84, 154 

Receiverships of 1884 158 

Receiverships of 1893 61, 160 

Receiverships table 1884-1899 164 

Regulation, Judge Cooley on object 

of 5 

Relation of capitalization and rates, 

Chairman Knapp on __ 6 

Reproduction, cost of 10, 114 

Reproduction of equipment, cost of 123 
Renewals in New England, an early 

instance of . 71 

Returns, small, on railway invest- 
ments 173 

Right of way, of early roads, donated 77 

Right of way, examples of cost 133 

Right of way, present value of 1 27 

Right of way, value of by states 130 



Right of way, not subject to depre- 
ciation 

Sanborn, Prof. J. B., on land grants. 
Service, public, of railways 1890- 

1900 

Shareholders entitled to capitalize 

profits 

Shareholders, number of 

Sources of capital 

Southern roads during the war 

Southern roads, cost of 1845.. 

Speed of travel in 1800 

Statistics of railways 

Steel rails, cost of when first intro- 
duced 

Steel rails, miles of, in 1880 

Stephenson, George, effect of his 

inventions 

Stevens, Colonel John, first advocate 

of steam railroads inU.S 

Stocks and bonds, difference as in- 
vestments 

Supreme Court, on elements in rail- 
way valuation 

Taxation, value of railways as shown 

in 

Taxation, as a test of value 

Taxation, assessed value of all prop- 
erty for purposes of 

Taxation, assessed value of railway 

property for 

Team haul, cost of per mile 

Terminal rights, value of 

Terminal right of way, value of _ 131, 

Texas, intangible assets in 

Texas railways, value of 

Toledo, Norwalk and Cleveland, 

original cost of 

"Tom Thumb", Peter Cooper's 

engine (Illustration) 

Track elevation, cost of in Chicago.. 
Track elevation in Chicago (Illustra- 
tion) 

Traffic as a measure of value 

Traffic, growth of, on Pennsylvania 
Traffic, growth of, on Camden and 

Amboy 

Tramway, cost of first 

Transcontinental line, completed 

1869 

Transportation, cost of, in 1800 

Travel by railway, in 1834 

Turnpikes, cost of 

Typical construction, examples of 

cost of .. 

Union Pacific, initial cost of 

Union Pacific, conditions under 

which it was built 

Unearned increment, none in value 

of railways 

Valuation of railways, elements 

entering into 

Valuation of railways cannot be 

based on earnings 

Valuation of railways, commercial.. 

Valuation of railways, market 

Valuation of railways as shown by 

taxatioti 

Valuation of railways in Texas 

Water in railway capital defined 

Wealth of the United States in 1800 

Wealth, the national, 1906 

Webster, Daniel, on journey from 
Washington to Washington, 

D. C 

Wellington, A. M., on what stock 

represents... ._ 

Western states, railway increase in, 

1870-1890 

Western roads, estimates of cost 

Wisconsin Commission on expendi- 
tures for improvements 

Wisconsin, wealth of, 1830-1906 



Page. 

71 
75 

87 

21 
21 
74,77 
79 
68 
31 
161 

83 
85 

33 

36 

12 

5 

11 
143 

144 

146 

38 

115 

135, 136 

115 

8, 147 

73 

35 

57 

56,57 
94 
95 

45 
37 

43 
31 

40 
38 

117, 118 
81 

82 

137 

5,;8 

8 

11, 138 

141 

143 

8, 146 

17 

31 

144 



97 
136 



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